The Economist - July 26 2014

Transcription

Stockmarkets and the DOG factor
Chinese firms struggle with the internet
What Jokowi means for Indonesia
A deadline for conquering AIDS
JULY 26TH– AUGUST 1ST 2014
Economist.com
The pointlessness of pushy parenting
A web of lies
How it entangles
Vladimir Putin,
Russia and
the West
The Economist July 26th 2014 3
Contents
6 The world this week
On the cover Vladimir Putin’s
epic deceits have grave
consequences for his people
and the outside world: leader,
page 9. The shooting down of
an airliner shows how reckless
Russia’s sponsorship of
Ukrainian rebels has been,
page 17. The Dutch show
resolve and restraint, page 18.
Despite the downing of MH17,
planes will continue to fly over
trouble spots, page 20
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Volume 412 Number 8897
Published since September 1843
to take part in "a severe contest between
intelligence, which presses forward, and
an unworthy, timid ignorance obstructing
our progress."
Editorial offices in London and also:
Atlanta, Beijing, Berlin, Brussels, Cairo,
Chicago, Hong Kong, Johannesburg, Lima,
Los Angeles, Mexico City, Moscow, New Delhi,
New York, Paris, San Francisco, São Paulo,
Singapore, Tokyo, Washington DC
Leaders
9 Russia, MH17 and the
West
A web of lies
10 Indonesia’s president
Fanfare for the common
man
10 Israel and Gaza
Stop the rockets, but lift
the siege
12 Corporate tax in America
How to stop the inversion
perversion
14 Helicopter parents
Relax, your kids will be fine
Letters
15 On FATCA, heads of state,
Arabs, bees, youth,
places
Briefing
17 MH17 and the war in
Ukraine
Collateral damage
18 Home at last
Stop all the windmills
20 Airline safety
Flight over fight
United States
21 Parenting in America
The gap between rich
and poor
25 Helicopter parents
Cancel that violin class
26 The death penalty in
California
A judge says no
26 Obamacare
Clear as mud
27 Susan Collins
Her reign in Maine
28 Lexington
Daydreaming of Elizabeth
Warren
The Americas
29 Argentina’s debt saga
Unsettling times
30 Bello
Latin America’s teachers
32 Coffee rust
Roya flushed
32 Brazil’s economy
All systems slow
33
34
34
35
36
Asia
Indonesia’s election
Jokowi’s day
Child-sex tourism
Virtual depravity
Energy in Central Asia (1)
Mi CASA no es tu CASA
Power failure
Australia’s
asylum-seekers
At sea
Israel and Gaza Any ceasefire
must start to tackle the roots
of the problem: leader, page
10. As the death toll soars,
both sides claim success and
mediators flounder, page 39.
The war in Gaza fuels tensions
between Israeli Arabs and
Jews, page 40
China
37 Improving health care
Fit for purpose
38 Recreational drugs
Chemical highs
39
40
41
41
42
43
Middle East and Africa
The war in Gaza
No one is winning—yet
Arabs in Israel
Do we belong?
Iran and its nuclear plans
Time out
Mosul’s Christians
All gone
School in northern
Nigeria
Modern and traditional
mixed
Chad and its neighbours
Africa’s roaming jihadists
Europe
45 Italian politics
The ex-Cavaliere is back
46 Ailing Croatia
A mighty mess
46 Poland’s defence
A front-line state
47 Greece’s bail-out
Still tightly monitored
48 Charlemagne
Germany alone at the top
Jokowi’s Indonesia
His victory is a landmark; he
now has to balance
reconciliation with decisive
leadership: leader, page 10.
The establishment loser tries
to spoil Jokowi’s day, page 33
Parenting Middle-class people
should give their children
more freedom: leader, page 14.
There is a large class divide in
American parenting, page 21.
Helicopter mums and dads will
not harm their kids if they
relax a bit, page 25
1 Contents continues overleaf
4 Contents
The Economist July 26th 2014
Britain
49 Supermarkets
Tescopoly no more
50 Politics
The Labor Party
Chinese firms and the web
Business in China has been
slow to embrace the internet.
As it does, productivity should
soar: Schumpeter, page 57.
Slowing investment and
resilient consumption in China
are changing Asia’s economic
order, page 59. China’s online
drugs dealers, page 38
In the DOG house
Stockmarket price-earnings ratios
15
Emerging-markets average
12
Zimbabwe
Iran
6
Russia
Argentina
2011
12
13
9
14
3
0
Sources: Thomson Reuters; MSCI;
Tehran Stock Exchange
The DOG factor What the
Discount for Obnoxious
Governments does to share
prices: Buttonwood, page 60.
Burgers and currencies, page 61
Renewable energy Wind and
solar power are even more
expensive than is commonly
thought: Free exchange,
page 63
International
51 Patients’ reviews
DocAdvisor
52 Doctors’ notes
Careful what you write
52 Female genital
mutilation
Progress, but too slow
Business
53 Siemens
Fixing the German dynamo
54 Herbalife
Shake, rattle ‘n’ roll
55 Online privacy and law
enforcement
Unwarranted
55 Microsoft
Cloud lifting
56 German beer
Pure, cheap and a bit dull
57 Schumpeter
China’s unplugged,
unproductive firms
Finance and economics
59 China and Asia
Winners and losers in the
great Chinese rebalancing
60 Buttonwood
When governments attack
61 Accounting rules for
banks
Freedom to fudge
61 The Big Mac index
A basket of sliders
62 Transparency at the Fed
More data, less gumption
62 Money-market funds
Faking the buck
63 Free exchange
The true cost of renewable
power
Science and technology
64 The 20th International
AIDS Conference
Is the end in sight?
66 Mental illness
Some needles in the
haystack
Books and arts
68 Nature, raptors and grief
H is for hawk
69 General Sherman
Fierce patriot
69 Lashing out
The punisher’s brain
70 Singing, a history
Voice-overs
70 Margot Asquith’s war
diary
Telling tales
71 Maeght Foundation
Travails in the south
76 Economic and financial
indicators
Statistics on 42
economies, plus a closer
look at GDP forecasts
Obituary
78 Joep Lange
A great AIDS researcher
Beating AIDS Campaigners
are now talking openly of
conquering the epidemic,
page 64. Our obituary of Joep
Lange, a colossus in the field,
page 78
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6
The world this week
Politics
The shooting down of a Malaysia Airlines jet, apparently by
pro-Russian rebels fighting
Ukrainian troops in eastern
Ukraine, changed the parameters of the five-month conflict.
The airliner was en route from
Amsterdam to Kuala Lumpur;
298 people died when it
crashed on July 17th. Most of
the bodies were eventually put
onto a refrigerated train and
transported to the government-controlled city of
Kharkiv, where a multinational forensics team examined them before being flown
back to the Netherlands.
Most of the anger over the
incident was vented at Russia,
suspected of providing the
missile that shot down the
aircraft. The European Union’s
efforts to impose tougher
sanctions were hampered by
France insisting that its delivery of a French-made warship
to Russia would go ahead in
spite of British and American
calls to stop it.
A committee in the British
Parliament issued a report into
the plan by Scotland’s Nationalists to share the pound if
Scots vote for independence in
September, and concluded
that this was a “dead parrot”.
The three main political parties have rejected the idea of a
currency union with Scotland,
which the report stressed
should not be seen as a bluff.
Squeezing blood from a stone
A judge in New York rejected a
request by Argentina for a stay
on a decision requiring the
country to pay a small group
of creditors who have been
chasing it following its 2001
debt default. If the country
does not reach a deal with the
creditors, it will be pushed into
default again, for the eighth
time in its history.
The trial of Leopoldo López, a
Venezuelan opposition
leader, began in Caracas behind closed doors. Mr López,
who is accused of inciting
violence during protests that
began earlier this year but have
since sputtered, has been in
custody since February.
Mexico’s groundbreaking
energy reform came closer to
the finishing-line. The Senate
approved bills to, among other
things, open the hydrocarbons
industry to foreign investment.
The lower house is expected to
add its approval shortly.
Depressingly familiar
More than 60 high-ranking
police officers were arrested in
Turkey in connection with
corruption investigations
against the government. They
stand accused of espionage
and illegal phone-tapping.
Silvio Berlusconi’s conviction
for paying for sex with a 17year-old girl was overturned
by an appeals court in Milan.
His lifetime ban from holding
public office was also revoked.
The former Italian prime minister wasn’t in court to hear the
judgment. He was working at a
care home as part of the community-service sentence given
to him in a separate conviction
for tax fraud.
Israelis had died. A rocket fired
by Palestinians in Gaza landed
a kilometre from Israel’s main
airport, on the edge of Tel Aviv,
prompting many airlines
temporarily to suspend their
flights to Israel. The American
secretary of state, John Kerry,
shuttled around the region,
trying to arrange a ceasefire.
to be used to kill him, reflecting
concerns about a botched
execution in Oklahoma, but
the federal Supreme Court
overturned the delay. In California a judge struck down the
capital sentences of 748 prisoners because of the long delay
taken between conviction and
execution.
The jihadist group that spearheaded last month’s conquest
of Iraq’s second city, Mosul,
expelled all Christians who
refused to convert to Islam.
Most of them fled to neighbouring Iraqi Kurdistan. A
decade ago there were reckoned to be around 60,000
Christians in the city.
Disputed tally
Legal-limbo land
Obamacare was thrown into
confusion when two federal
appeals courts issued contradictory rulings about whether
people who signed up for
health insurance through the
federal exchange can claim
subsidies. The government
created the federal exchange,
where most people have
bought their Obamacare insurance, after dozens of states
refused to set up their own.
The Republican Senate primary in Georgia was won by
David Perdue, a businessman,
who beat Jack Kingston, a
congressman. Mr Perdue will
face Michelle Nunn, the
daughter of a former Democratic senator, in November in
what promises to be a closely
contested seat.
A majority of Detroit’s retired
public-sector workers voted to
accept a package of reduced
pension benefits, a crucial part
of the bankrupt city’s plan to
restructure its finances. Obstacles still remain. A judge will
begin a hearing next month
into whether the plan is fair to
creditors.
The Israeli campaign in Gaza
to clobber the Palestinians’
Islamist movement, Hamas,
which began with attacks from
the air and by artillery on July
8th, intensified on July 17th
when Israeli troops entered by
land. By July 24th the death toll
of Palestinians, most of them
civilians, had exceeded 700; 35
More concerns were raised
about the process of executing
murderers in America after
another man took a long time
to die. Joseph Wood was put to
death in Arizona. A few days
earlier a court had ruled that
he had a right to know the
source of the drugs that were
Joko Widodo, the governor of
Jakarta, was declared the
winner of Indonesia’s
presidential election, with 53%
of the vote. The losing candidate, Prabowo Subianto, a
former general, alleged
massive fraud, though he
produced no evidence, and
said he would challenge the
result in court.
The authorities in China detained five people as part of an
investigation into a company
that allegedly supplied out-ofdate meat to fast-food chains.
Regulators suspended operations at Shanghai Husi Food
following media reports that it
reprocessed expired meat and
sold it to companies that included McDonald’s and KFC.
Police in South Korea confirmed that the body of a man
found last month is that of Yoo
Byung-eun, a tycoon who was
wanted in connection with the
sinking of a ferry in April that
killed 300 people. Mr Yoo’s
family owned the ferry’s
operating company.
Amnesty said that Alexander
Sodiqov, a Canadian-based
research student, had been
released on bail in Tajikistan.
He had been detained last
month by the secret police for
interviewing an opposition
leader, a “treasonous” offence
in the paranoid regime of
1
Emomali Rakhmon.
Business
At a crowded hall in Manhattan, Bill Ackman, an activist
hedge-fund manager, at last
laid out his case alleging that
Herbalife is a pyramid
scheme. Mr Ackman has bet $1
billion shorting Herbalife’s
shares and spent $50m investigating its marketing practices. During his presentation
he compared the company to
Enron and Nazis, but the
“death blow” he said he would
deliver failed to pack a punch;
Herbalife’s share price rose by
25% by the end of the day.
Deutsche Bank came under
pressure, after the leak of a
letter, written in December by
the New York Federal Reserve,
criticising its accounting reports in America as “unreliable”. It is the latest instance of
a big European bank falling
foul of American regulators.
Credit Suisse reported a quarterly loss of SFr700m ($780m),
which it put down to the $2.8
billion settlement it reached in
May with American regulators
for helping tax evaders.
AbbVie’s $55 billion bid for
Shire was accepted by Shire’s
board. The deal is the most
recent example of an “inversion” takeover by an American company that reduces its
taxes, and which is rousing the
ire of America’s politicians.
The combined firm will move
to Britain; AbbVie’s acquisition
could save it $8 billion in taxes,
according to one estimate.
Spain’s central bank said the
country’s economy grew by
0.5% in the second quarter, the
fastest pace for six years. The
Bank of Spain raised its forecast for GDP growth to 1.3% for
this year and 2% for next.
A cloudy future
Microsoft attributed a rise in
revenue in the latest quarter to
its “aggressive move to the
cloud”. Sales of its cloud-based
services, such as Office 365 and
Azure, to companies grew by
147% compared with the same
three months in 2013. But the
Nokia handset business that
The world this week 7
Microsoft finished acquiring in
April lost money and overall
net income was down, to $4.6
billion. Microsoft’s recently
announced 18,000 job cuts
will come mostly from its
handset operations.
Microsoft’s patchy earnings
were in stark contrast to the
impressive quarterly results
reported by Facebook. The
growth of advertising on mobile devices helped push revenue up 61% to $2.9 billion and
saw profit double to $791m.
The social network added 40m
users in the quarter, bringing
the number of people who
view it at least once a month to
1.3 billion. Its share price
jumped to a new high.
Strong demand in China
helped Apple report solid
quarterly earnings. Revenue
came in at $37.4 billion, with
sales in China growing by 28%.
Profit was $7.7 billion. Intriguingly, Apple’s spending on
R&D leapt by 36%, leading to
speculation that its forthcoming wearable device could be
something spectacular.
As a means of shoring up its
defences against a potential
hostile takeover bid from
Rupert Murdoch, Time
Warner suspended a rule that
allows shareholders to call a
special meeting. It has rejected
an offer worth around $80
billion from Mr Murdoch’s 21st
Century Fox, though the media tycoon is still circling.
plan, but Tesco’s sales have
suffered, squeezed by cheaper
rivals such as Aldi and Lidl. His
replacement is Dave Lewis,
who heads Unilever’s personal-care brands.
Smart TV
Netflix members
m
American
Foreign
60
50
40
30
20
10
0
2011
12
13
14
Source: Company reports
Netflix notched up 50m subscribers for the first time. Its
online streaming service is
doing well outside its domestic
market in America and it has
plans to launch soon in France
and Germany. The latest quarter saw a big increase in subscribers in Brazil, possibly the
result of Brazilians splashing
out on internet-enabled televisions to watch the World Cup.
Tesco, the world’s secondbiggest retailer, removed its
chief executive after issuing
another profit warning. Philip
Clarke started his career at the
British supermarket chain by
stacking shelves at 14. During
his time as boss he undertook
an ambitious restructuring
Even seasoned court observers
were astounded by the $23.6
billion penalty handed down
by a jury in Florida against R.J.
Reynolds, a big tobacco company, for hiding the health
risks of cigarettes. The jury
awarded the money to the
widow of a chain smoker,
who, she said, “really did
smoke a lot”. The settlement
has little chance of being
upheld by an appeals court.
Toiling for the future
The week saw some innovative thinking about boosting
worker productivity. Carlos
Slim, the world’s richest man,
suggested that with ageing
populations, employees
would soon be working until
their 70s but move to a threeday week with 11-hour days.
And in Seoul, city managers
said that staff could take naps
to recharge their batteries. But
workers delighted at the prospect of an officially sanctioned
40 winks will still have to
make up the time.
Other economic data and news
can be found on pages 76-77
THE NEXT BIG THING
IS HERE
™
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Device screen images simulated.
Leaders
A web of lies
Vladimir Putin’s epic deceits have grave consequences for his people and the outside world
I
N 1991, when Soviet Communism collapsed, it seemed as if
the Russian people might at last
have the chance to become citizens of a normal Western democracy. Vladimir Putin’s disastrous contribution to Russia’s
history has been to set his country on a different path. And yet many around the world,
through self-interest or self-deception, have been unwilling to
see Mr Putin as he really is.
The shooting down of Malaysia Airlines flight MH17, the
killing of 298 innocent people and the desecration of their bodies in the sunflower fields of eastern Ukraine, is above all a
tragedy oflives cut short and ofthose left behind to mourn. But
it is also a measure of the harm Mr Putin has done. Under him
Russia has again become a place in which truth and falsehood
are no longer distinct and facts are put into the service of the
government. Mr Putin sets himself up as a patriot, but he is a
threat—to international norms, to his neighbours and to the
Russians themselves, who are intoxicated by his hysterical
brand of anti-Western propaganda.
The world needs to face the danger Mr Putin poses. If it does
not stand up to him today, worse will follow.
Crucifiction and other stories
Mr Putin has blamed the tragedy of MH17 on Ukraine, yet he is
the author of its destruction. A high-court’s worth of circumstantial evidence points to the conclusion that pro-Russian
separatists fired a surface-to-air missile out of their territory at
what they probably thought was a Ukrainian military aircraft.
Separatist leaders boasted about it on social media and lamented their error in messages intercepted by Ukrainian intelligence and authenticated by America (see page 17).
Russia’s president is implicated in their crime twice over.
First, it looks as if the missile was supplied by Russia, its crew
was trained by Russia, and after the strike the launcher was
spirited back to Russia. Second, Mr Putin is implicated in a
broader sense because this is his war. The linchpins of the selfstyled Donetsk People’s Republic are not Ukrainian separatists
but Russian citizens who are, or were, members of the intelligence services. Their former colleague, Mr Putin, has paid for
the war and armed them with tanks, personnel carriers, artillery—and batteries of surface-to-air missiles. The separatists
pulled the trigger, but Mr Putin pulled the strings.
The enormity of the destruction of flight MH17 should have
led Mr Putin to draw back from his policy of fomenting war in
eastern Ukraine. Yet he has persevered, for two reasons. First,
in the society he has done so much to mould, lying is a first response. The disaster immediately drew forth a torrent of contradictory and implausible theories from his officials and their
mouthpieces in the Russian media: Mr Putin’s own plane was
the target; Ukrainian missile-launchers were in the vicinity.
And the lies got more complex. The Russian fiction that a Ukrainian fighter jet had fired the missile ran into the problem
that the jet could not fly at the altitude of MH17, so Russian
hackers then changed a Wikipedia entry to say that the jets
could briefly do so. That such clumsily Soviet efforts are easily
laughed off does not defeat their purpose, for their aim is not to
persuade but to cast enough doubt to make the truth a matter
of opinion. In a world of liars, might not the West be lying, too?
Second, Mr Putin has become entangled in a web of his
own lies, which any homespun moralist could have told him
was bound to happen. When his hirelings concocted propaganda about fascists running Kiev and their crucifixion of a
three-year-old boy, his approval ratings among Russian voters
soared by almost 30 percentage points, to over 80%. Having
roused his people with falsehoods, the tsar cannot suddenly
wriggle free by telling them that, on consideration, Ukraine’s
government is not too bad. Nor can he retreat from the idea
that the West is a rival bent on Russia’s destruction, ready to resort to lies, bribery and violence just as readily as he does. In
that way, his lies at home feed his abuses abroad.
Stop spinning
In Russia such doublespeak recalls the days of the Soviet Union when Pravda claimed to tell the truth. This mendocracy
will end in the same way as that one did: the lies will eventually unravel, especially as it becomes obvious how much money
Mr Putin and his friends have stolen from the Russian people,
and he will fall. The sad novelty is that the West takes a different attitude this time round. In the old days it was usually prepared to stand up to the Soviet Union, and call out its falsehoods. With Mr Putin it looks the other way.
Take Ukraine. The West imposed fairly minor sanctions on
Russia after it annexed Crimea, and threatened tougher ones if
Mr Putin invaded eastern Ukraine. To all intents and purposes,
he did just that: troops paid for by Russia, albeit not in Russian
uniforms, control bits of the country. But the West found it convenient to go along with Mr Putin’s lie, and the sanctions eventually imposed were too light and too late. Similarly, when he
continued to supply the rebels, under cover of a ceasefire that
he claimed to have organised, Western leaders vacillated.
Since the murders of the passengers of MH17 the responses
have been almost as limp. The European Union is threatening
far-reaching sanctions—but only if Mr Putin fails to co-operate
with the investigation or he fails to stop the flow of arms to the
separatists. France has said that it will withhold the delivery of
a warship to Mr Putin if necessary, but is proceeding with the
first of the two vessels on order. The Germans and Italians
claim to want to keep diplomatic avenues open, partly because sanctions would undermine their commercial interests.
Britain calls for sanctions, but it is reluctant to harm the City of
London’s profitable Russian business. America is talking tough
but has done nothing new.
Enough. The West should face the uncomfortable truth that
Mr Putin’s Russia is fundamentally antagonistic. Bridge-building and resets will not persuade him to behave as a normal
leader. The West should impose tough sanctions now, pursue
his corrupt friends and throw him out of every international
talking shop that relies on telling the truth. Anything else is appeasement—and an insult to the innocents on MH17. 7
10 Leaders
Indonesia’s new president
Fanfare for the common man
Jokowi’s victory is a landmark; he now has to balance reconciliation with decisive leadership
I
N A year thick with bad news,
much of it about Islam, it is
perhaps surprising that the
world’s biggest Muslim-majority country should produce the
most heartening piece of politics so far. Yet the announcement on July 22nd that Joko Widodo, universally known as Jokowi, had won Indonesia’s
general election is just that.
Above all, this is a triumph for democracy, albeit a somewhat messy one. In a country which was run by the Suharto
dictatorship 16 years ago, the election marks the first time that
one popularly elected leader, Susilo Bambang Yudhoyono,
makes way for another. Democratic transitions in Asia do not
always go smoothly—think of Burma in 1990 or Thailand’s recurring dramas. Indonesia’s is still not wholly secure. The runner-up, Prabowo Subianto, a volatile former general and sonin-law of the late dictator, has claimed large-scale fraud and is
leaning on the Constitutional Court to annul the result (see
page 33). But given the six percentage-point margin of Jokowi’s
victory, Mr Prabowo is unlikely to get far.
Indonesia’s populist victor is a more wholesome figure
than Thaksin Shinawatra, the Thai businessman whose ability to win elections has irritated that country’s ruling class. Jokowi has emerged not from the cronyism of Indonesia’s political and business elites, but out of the reformasi movement that
toppled Suharto. He built a furniture business before rising,
through popular elections, to the post of mayor of the midsized town of Solo in central Java and then, in 2012, to governor
of the sprawling capital, Jakarta. In that job, he asked people
what they wanted, got to grips with the capital’s appalling traffic and lessened the impact of the annual monsoon floods. Indonesia’s lofty politicians rarely stoop to solving such dreary
problems or allowing voters to speak to them.
Jokowi’s reputation for running a clean government and
getting things done spread fast, and propelled him on to the national stage. He had some help from the old guard, hitching his
wagon to the party of Megawati Sukarnoputri, daughter of the
country’s independence leader, for the presidential race. But
Indonesia’s decentralised democracy can take much of the
credit for his ascent from mayor to president. As befits a jumble
of ethnicities and faiths strung out over13,500 or so islands, Indonesia has devolved much authority to local government,
out of which Jokowi emerged.
Jokowi’s strength is that he is an outsider. He represents no
particular group. That is why his calls for reconciliation after a
bitter election sound genuine. In a post-results speech that was
as generous as Mr Prabowo’s was mean, Jokowi acknowledged that the close-fought campaign has divided families,
neighbours and friends. It was time, he said, for Indonesia to
unite again.
Reconciliation, yes; bringing everyone into the tent, no
The call is welcome. But Indonesian politics is too heavily coloured by consensus, and Jokowi’s own governing style is softedged. To form a parliamentary majority, Jokowi needs a
broad coalition, as did Mr Yudhoyono before him. For the outgoing president, that too often led to policy paralysis and graft.
Jokowi must not let consensus trump leadership.
More than anything else, that means tackling corruption.
He should start by filling his cabinet with capable technocrats
not party hacks. He must sack corrupt or incompetent bureaucrats and judges. And he must overhaul the venal courts. Only
then will he be able to start to sort out the rest: weak government finances, rotten infrastructure, poor education and a ravaged environment. For all his promise Jokowi has much to do
before he can be deemed a truly transformational leader. 7
Israel and Gaza
Stop the rockets, but lift the siege
Any ceasefire will be temporary unless Israel starts negotiating seriously with the Palestinians
T
HE mounting toll of innocents in Gaza is reason
July 8th-23rd 2014
enough for anyone with com0 200 400 600 800
passion to demand a ceasefire.
Since July 8th, when Israel bePalestinian
gan its campaign to clobber Hamas, the Palestinian Islamist
Israeli
movement that has run the
Gaza Strip since 2007, at least 700 Palestinians have been
killed, most of them civilians and many of them children,
along with at least 35 Israelis, including three civilians. After Israel undertook a ground invasion of Gaza on July 18th, the casualty rate on both sides soared. Hospitals have been hit and
Israel-Gaza conflict deaths
scores of buildings flattened, often with civilians inside. A Palestinian family of 25, said to have been hosting a Hamas fighter
during a supper to break the Ramadan fast, was wiped out.
Yet it would be a grievous mistake to bring about a ceasefire
that achieved nothing more than to revert to the status quo. In
the longer run, if a more durable peace is to be built, the Israelis
must seek a sovereign state for Palestinians, who, including
Hamas, must in turn reiterate their support for a government
that disavows violence and recognises Israel. Unless a ceasefire is couched in such terms, the poison will in time well up all
over again and the cycle of violence will resume, as it has done
repeatedly since 2007.
Only three months ago talks on a peace deal foundered. 1
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12 Leaders
2 Could it be any different this time? One reason to think so is
that both sides have seen how that collapse paved the way for
a war that neither really wanted and which is now causing
higher military casualties than Israel had been expecting.
The talks broke down chiefly because of Israel, said John
Kerry, their sponsor and America’s secretary ofstate. In frustration, Mahmoud Abbas, the Palestinians’ moderate leader,
formed a unity government that Hamas was persuaded to
back. Whereas America cautiously welcomed this development, Binyamin Netanyahu, Israel’s prime minister, railed
against it, fearing a united Palestinian front. When on June 12th
three Israeli students were kidnapped and murdered on the
West Bank, Mr Netanyahu instantly blamed the crime on Hamas, which unusually refused to claim responsibility for it,
and rounded up at least 500 ofthe group’s members. Its retaliation, the multiplying rocket fire at Israel, led Mr Netanyahu to
unleash his assault on Gaza.
The Israelis’ first stated military aim is the legitimate one of
destroying Hamas’s stockpile of rockets, thousands of which
have been fired indiscriminately—indeed, criminally and foolishly—into Israel in the past decade, killing around a score of Israelis and frightening millions more, as the missiles’ range and
sophistication have increased. A newer aim, also legitimate, is
to destroy Hamas’s military infrastructure, especially the tunnels that provide access to Israeli territory in the hope—among
other things—of sending in guerrillas to murder Israelis, or kidnap them to barter for Palestinian prisoners in Israeli jails.
But war is about conduct as well as aims. Israel is wrong to
hit buildings with no evident military purpose and houses
packed with civilians, even if they harbour Hamas fighters or
officials and the army gives warnings. It may also be counterproductive. Hamas knows that, as the death toll among its
own people rises, it has a better chance to promote its cause.
The world’s biggest open-air prison
To stop the fighting Hamas must promise not to fire its rockets
into Israel. But in return Israel should agree to honour an agreement dating to 2012 to lift the siege that has immiserated Gaza’s
inhabitants since 2007 in an effort to enfeeble Hamas. And it
should free, or put on trial, some of the hundreds of Hamas
prisoners rounded up in the past month or so on the West
Bank, the bigger bit of a would-be Palestinian state.
But the catastrophe befalling Gaza stems fundamentally
from the refusal of Israel to negotiate in good faith to let the Palestinians have a proper state encompassing both Gaza and the
West Bank. Mr Netanyahu still allows the building of Jewish
settlements there, which makes a workable Palestinian state
ever less likely to emerge.
Real mediation must be resumed. Egypt has to be involved,
since it shares with Israel the keys to the prison that is Gaza, but
its new military rulers hate the Islamists of Hamas as much as
Israel does. Turkey and Qatar can help prod Hamas towards
moderation but are loathed by Israel. America is still the one
actor that has the weight, however diminished, to bring everyone to the table. Though bruised by his previous fruitless efforts, Mr Kerry must do more than just stop the rockets. 7
Corporate tax in America
How to stop the inversion perversion
Restricting companies from moving abroad is no substitute for corporate-tax reform
E
CONOMIC refugees have traditionally lined up to get into
America. Lately, they have been
lining up to leave. In the past few
months, half a dozen biggish
companies have announced
plans to merge with foreign partners and in the process move
their corporate homes abroad. The motive is simple: corporate
taxes are lower in Ireland, Britain and, for that matter, almost
everywhere else than they are in America.
In Washington, DC, policymakers have reacted with indignation. Jack Lew, the treasury secretary, has questioned the
companies’ patriotism and called on Congress to outlaw such
transactions. His fellow Democrats are eager to oblige, and
some Republicans are willing to listen.
The proposals are misguided. Tightening the rules on corporate “inversions”, as these moves are called, does nothing to
deal with the reason why so many firms want to leave: America has the rich world’s most dysfunctional corporate-tax system. It needs fundamental reform, not new complications.
America’s corporate tax has two horrible flaws. The first is
the tax rate, which at 35% is the highest among the 34 mostly
rich-country members of the OECD. Yet it raises less revenue
than the OECD average thanks to myriad loopholes and tax
breaks aimed at everything from machinery investment to
NASCAR race tracks. Last year these breaks cost $150 billion in
forgone revenue, more than half of what America collected in
total corporate taxes.
The second flaw is that America levies tax on a company’s
income no matter where in the world it is earned. In contrast,
every other large rich country taxes only income earned within its borders. Here, too, America’s system is absurdly ineffective at collecting money. Firms do not have to pay tax on foreign profits until they bring them back home. Not surprisingly,
many do not: American multinationals have some $2 trillion
sitting on their foreign units’ balance-sheets, and growing.
All this imposes big costs on the economy. The high rate discourages investment and loopholes distort it, because decisions are driven by tax considerations rather than a project’s
economic merits. The tax rate companies actually pay varies
wildly, depending on their type of business and the creativity
of their lawyers: some pay close to zero, others the full 35%.
Twenty years ago inversions were rare. But as other countries chopped their rates and America’s stayed the same, the incentive to flee grew. Until a decade ago Bermuda and other tax
havens were the destination of choice, until Congress banned
inversions where less than 20% of the company changed
hands. Democrats have proposed expanding that prohibition
to any transaction where less than 50% of the company
changes hands—so an American company that bought a
smaller foreign firm could not reincorporate abroad if its origi- 1
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14 Leaders
2 nal shareholders remained in charge. Such a ban would be at
best a temporary palliative. An American company paying
higher taxes than its foreign competitors has a powerful incentive to find a way around the rules. Consultants are already
coming up with dodges in case this proposal becomes law.
Home, sweeter home
The real solution is to lower the corporate rate, eliminate tax
breaks and move America from a worldwide system to a territorial one. Barack Obama has proposed a reform that cuts the
rate to 28% but keeps the worldwide reach. Dave Camp, a Republican congressman, has plumped for 25%, the OECD aver-
age, and a shift to a territorial system, instead.
It should be possible to bridge the differences. But both
sides have tied the subject to other issues. Mr Obama insists
that corporate-tax reform must also raise more money to
spend on things like public infrastructure, which the Republicans oppose; they, in turn, want to package it with cuts in personal tax rates, which Mr Obama is loth to accept. Thus, nothing happens.
The two sides should drop their conditions and hammer
out a stand-alone corporate-tax reform that reduces the rate
and broadens the base. Until then, expect the line-up of corporate migrants to grow. 7
Helicopter parents
Relax, your kids will be fine
Middle-class parents should give their children more freedom
I
N 1693 the philosopher John
Locke warned that children
should not be given too much
“unwholesome fruit” to eat.
Three centuries later, misguided
ideas about child-rearing are still
rife. Many parents fret that their
offspring will die unless ceaselessly watched. In America the law can be equally paranoid. In
South Carolina this month Debra Harrell was jailed for letting
her nine-year-old daughter play in a park unsupervised. The
child, who had a mobile phone and had not been harmed in
any way, was briefly taken into custody of the social services.
Ms Harrell’s draconian punishment reflects the rich world’s
angst about parenting. By most objective measures, modern
parents are far more conscientious than previous generations.
Since 1965 labour-saving devices such as washing machines
and ready meals have freed eight hours a week for the average
American couple, but slightly more than all of that time has
been swallowed up by childcare. Dads are far more hands-on
than their fathers were, and working mothers spend more
time nurturing their sprogs than the housewives of the 1960s
did. This works for both sides: children need love and stimulation; and for the parents, reading to a child or playing ball
games in the garden is more fulfilling than washing dishes.
There are two blots in this picture, connected to class. One is
at the lower end. Even if poor parents spend more time with
their children than they once did, they spend less than rich parents do—and they struggle to provide enough support, especially in the crucial early years (see page 21). America is a laggard here; its government spends abundantly on school-age
kids but much less than other rich countries on the first two or
three years of life. As this newspaper has pointed out before, if
America did more to help poor parents with young children, it
would yield huge returns.
The second problem, less easy to prove, occurs at the other
end of the income scale, and may even apply to otherwise rational Economist readers: well-educated, rich parents try to do
too much (see page 25). Safety is part of it: they fear that if they
are not constantly vigilant their children may break their necks
or eat a cupcake that has fallen on the floor. Over-coaching is
another symptom. Parents fear that unless they drive their off-
spring to Mandarin classes, violin lessons and fencing practice
six times a week, they will not get into the right university. The
streets of Palo Alto and Chelsea are clogged with people-carriers hauling children from one educational event to another.
The fear about safety is the least rational. Despite the impression you get from watching crime dramas, children in rich
countries are mind-bogglingly safe, so long as they look both
ways before crossing the road. Kids in the 1950s—that golden
era so often evoked by conservative politicians—were in fact
five times likelier to die before the age of five. Yet their parents
thought nothing of letting them roam free. In those days, most
American children walked or biked to school; now barely 10%
do, prevented by jittery parents. Children learn how to handle
risks by taking a few, such as climbing trees or taking the train,
even if that means scraped knees and seeing the occasional
weirdo. Freedom is exhilarating. It also fosters self-reliance.
Get out of that helicopter
The other popular parental fear—that your children might not
get into an Ivy League college—is more rational. Academic success matters more than ever before. But beyond a certain point,
parenting makes less difference than many parents imagine.
Studies in Minnesota and Sweden, for example, found that
identical twins grew up equally intelligent whether they were
raised together or apart. A study in Colorado found that children adopted and raised by brainy parents ended up no brainier than those adopted by average parents. Genes appear to
matter more than upbringing in the jobs market, too. In a big
study of Korean children adopted in America, those raised by
the richest families grew up to earn no more than those adopted by the poorest families.
This does not mean that parenting is irrelevant. The families
who adopt children are carefully screened, so they tend to be
warm, capable and middle-class. But the twin and adoption
studies indicate that any child given a loving home and adequate stimulation is likely to fulfil her potential. Put another
way, better-off parents can afford to relax a bit. Your kids will
be fine if you hover over them less and let them frolic in the
sun from time to time. You may be happier, too, if you spend
the extra time indulging your own hobbies—or sleeping. And if
you are less stressed, your children will appreciate it, even if
you still make them eat their fruit and vegetables. 7
Letters
FATCA and tax evaders
SIR – In response to your
broadside against the Foreign
Account Tax Compliance Act
(FATCA), I would like to point
out that the American
Treasury has tailored the rules
to minimise burdens and costs
and has considered hundreds
of comments from financial
institutions and foreign governments (“Dropping the
bomb”, June 28th). As a consequence, many low-risk entities,
accounts and payments are
exempt from FATCA altogether.
It is also important to note
that FATCA’s requirements are
the same for all American
taxpayers—expats are treated
no differently. All citizens are
required to comply with
United States’ tax laws and
FATCA is a tool to enforce
them. Tax evaders should
rightly worry that FATCA will
reveal their illicit activities.
The work by the G20 and
OECD on the common reporting standard for tax evasion
draws extensively on FATCA’s
intergovernmental approach.
With more than 80,000 foreign financial institutions
registered to comply, the
worldwide effort to thwart tax
evasion is going well.
MARK J. MAZUR
Assistant secretary for tax policy
Treasury Department
Washington, DC
SIR – I have been an international tax adviser for 35 years
and am always amazed that
America ignores the normal
rules that apply between
countries and simply does
what it wants. A cynic might
view the real reason for this
legislation as helping the
competitive position of American banks. It would not be the
first time. There are other tax
rules that make it very difficult
for Americans to invest in
many foreign investment
funds and some regulations
that also favour American
banks.
The most surprising thing is
that other countries just let this
happen. Instead of threatening
retaliatory measures, such as
fining any American bank that
opens accounts without requiring proof of identity, many
have entered into agreements
to accept FATCA, even though
reciprocity is not on offer and
the United States is not interested in international moves
for more transparency. What is
good for Swiss banks is not
good for American banks.
Rumour has it that many
foreigners keep their money in
America because secrecy there
is far better than most tax
havens.
JOHN GRAHAM
International tax counsel
Amsterdam
Two-state solution
SIR – Eduard Shevardnadze
(Obituary, July 12th) was a
realist, rationalist and indeed a
silver fox in diplomacy. But he
was not the only politician to
have been the foreign minister
of one country and the head of
state of another.
Almost two centuries ago,
Ioannis Kapodistrias was the
foreign minister of the Russian
empire at the service of
Alexander I. He later became
the first head of state of newly
liberated Greece.
ANTONIOS KOUROUTAKIS
Oxford
Change in the Arab world
SIR – You were right to note the
differences in Arab societies
(“Tethered by history”, July
5th). The centuries-old kingdom of Morocco, for example,
is more liberal and stable than
most of the “progressive”
republics created in the aftermath of European colonialism.
Unlike oil-rich Arab states,
Morocco has no option but to
balance security and openness
in a “sultanic democracy.”
It is true that only Arabs can
reverse the decline of their
civilisations, as no one else
will do it for them. But for this
to happen the entire Islamic
legacy—sacred corpus and
all—must be subjected to rigorous intellectual analysis, much
like when Judeo-Christian
traditions were scrutinised by
the probing questions of
Enlightenment thinkers. Our
modern world, with its expectations for freedom, human
rights and the pursuit of happiness, is the outcome of an
intellectual revolution that
shook the foundations of
sclerotic European regimes
and gave birth to the modern
world.
Islamic countries, and
Muslims in general, have yet to
come to terms with issues that
unsettle their world view.
Until they do, I am afraid we
will continue to hear more
about Islam’s “golden age”
than we will about the faith’s
adherents joining the universal march for innovation and
prosperity.
ANOUAR MAJID
University of New England
Portland, Maine
SIR – If Arabs are ever lucky
enough to get leaders who
show true courage and vision
then maybe we will get a real
push for education, the abolition of religious schools and
an end to laying the blame for
their troubles on Western
countries. Maybe they will
also stop demonising Israel.
Israeli Arabs have more rights
than the citizens of Arab-ruled
countries. This should encourage commercial, scientific,
educational and cultural exchanges with their neighbours.
HENRY POLITI
Brussels
SIR – Regarding the “Tragedy
of the Arabs” (July 5th), this is
the end result of the burning of
the books of Averroes and the
near-excommunication of
Taha Hussein coupled with
centuries of despotism and
cultural repression. The worst
is yet to come.
By the way the new
“caliph”, Abu Bakr al-Baghdadi, wears a Rolex watch.
WALID JOUMBLATT
Beirut
A real buzz to the economy
SIR – It was with dismay that I
read Lexington reducing the
contribution of the honey bee
to a mere “$24 billion” (July
5th). These unsung workers are
the linchpin of our entire
world economy. Pause for a
moment and consider what
would happen to the price of
food if we lost our pollinators.
According to Christopher
O’Toole in “Bees: A Natural
History”, between 2009 and
2010 beekeepers in America
lost 42% of their bee colonies
because of colony collapse
disorder, pesticides, parasites,
disease and a loss of habitat.
CAROL MONTCLAIRE
Wilsonville, Oregon
Wise heads
SIR – I have my own theory
about why today’s young are
increasingly well-behaved
(“Oh! You pretty things”, July
12th). In my own binge-drinking youth the scale of embarrassment that my exploits
caused were restricted to the
handful of friends I was with
at the time. This is no longer
the case. Every vomit in a bar,
ejection from a nightclub or
wide-eyed indulgence is now
fair game for sharing on Twitter, Snapchat, Facebook, etc.
Nothing makes one behave
like knowing the world is
watching.
RYAN DALL
Harrogate, North Yorkshire
SIR – I read with interest and
concern, but not surprise, of
Argentina’s “teenage” attitude
to rules (“The Luis Suárez of
international finance”, July
5th). My concern would have
been lessened and my surprise
greatly increased had I known
that a teenage attitude these
days means being a law-abiding citizen, abstaining from
drink, drugs and casual sex
and studying hard.
DANIEL OLIVE
London
A pleasurable vacation
SIR – With reference to funny
placenames (Letters, July 12th),
how could you have missed
Dildo Run in Canada? I have
always wanted to go there
purely for the sake of bringing
back a souvenir proudly
bearing the name.
DIANNA WUAGNEUX
Castleton, Vermont 7
Letters are welcome and should be
addressed to the Editor at
The Economist, 25 St James’s Street,
London sw1A 1hg
E-mail: letters@economist.com
More letters are available at:
Economist.com/letters
16
Executive Focus
Briefing MH17 and the war in Ukraine
Collateral damage
Also in this section
18 Heartbreak in Holland
20 Why aircraft fly over war zones
BERLIN, DONETSK, MOSCOW
The shooting down of an airliner shows how reckless Vladimir Putin’s sponsorship
of Ukrainian rebels has been
T
HE sight of bodies fallen from the sky
and strewn across the fields outside the
village of Grabovo will stay with those
who saw it for a long time. The image of a
thug taking a dead man’s wedding ring,
evoked with dignity and disgust by Dutch
foreign minister Frans Timmermans in a
speech to the UN Security Council, is a
powerful one. The missile attack on Malaysia Airlines flight MH17 by Russian-backed
rebels in eastern Ukraine killed 298 people
and shocked the world. How it might affect
the outcome of the war into which the
wreckage fell, though, remains to be seen.
On July 21st, four days after the Boeing
777 was brought down, the human remains that had been piled into grey refrigerated railway cars near the crash site finally left for Kharkiv, from where they were to
be flown to the Netherlands (see box on
next page). The separatist forces at the
scene numbered the bodies at 282; Dutch
experts put the number closer to 200. In
the small hours of the next morning the
plane’s black boxes were handed over to
Malaysian representatives in a bizarrely
formal ceremony in the rebels’ administration building in Donetsk. One Dutch expert praised the local teams that had taken
part in the recovery as doing “a hell of a job
in a hell of a place”. But the obstruction
and intimidation by rebel forces that kept
investigators and other responders from
the site served only to deepen anger in the
rest of the world.
Among the rebel rank and file, and in
most places where news outlets are controlled by Russia, there is a widespread belief that MH17 was brought down by Ukrainian aircraft, perhaps as a way of eliciting
further Western support by blaming Russia, perhaps because they mistook it for an
aircraft carrying the Russian president,
Vladimir Putin. Local people in eastern Ukraine, used to seeing rebels with outdated
weapons on the streets, don’t think them
capable of bringing down an airliner. In
the rest of the world, though, the evidence
seems, if circumstantial, incontrovertible.
“We have just shot down a plane”
The flight was cruising at 10,000 metres
(33,000 feet), an altitude at which only a
sophisticated surface-to-air missile system
or another aircraft would be able to hit it.
The only such systems known to be in the
area are Buk missiles which are under the
control ofthe rebels. On July17th a Bukmissile launcher was seen on various social
media moving towards Snizhne, about
80km from the rebel stronghold of Donetsk and close to where the aircraft was
shot down. America says a missile was
launched from the area just before the air-
craft was destroyed.
In a phone call made half an hour after
the remains of MH17 hit the ground Igor Bezler, a separatist leader, told a Russian intelligence officer “we have just shot down a
plane”. That call and others were intercepted and made public by Ukrainian intelligence; the American embassy in Kiev subsequently issued a statement confirming
the authenticity of the transcripts.
This evidence led Barack Obama and
many other Western leaders to place the
blame firmly on Mr Putin, the rebels’ reckless sponsor and, in all likelihood, the supplier of the missile. That condemnation
added to the pressure felt when the European Union’s foreign ministers met in
Brussels on July 22nd to consider its response. The EU’s previous unwillingness
to propose sanctions that might impose
real costs on the members looked more
spineless than ever.
The Netherlands, which lost 193 citizens
in the attack, including the eminent AIDS
researcher Joep Lange (see page 78), supported a toughened line; Italy, often an obstacle to tightening sanctions, made no attempt to block such moves. Several
ministers spoke of a turning point in relations with Russia. The communiqué they
issued said they would “accelerate the
preparation of targeted measures” which 1
18 Briefing MH17 and the war in Ukraine
2 had been agreed at an earlier summit, in-
creasing the number of people and entities
“materially or financially supporting” Russia’s policy of destabilising eastern Ukraine that will be subject to travel bans and
the freezing of assets. The ministers said
they would act by the end of the month.
Such incremental measures amount to
expanding so-called “phase two” sanctions against Russia, bringing Europe closer
in line with America. Of greater importance is that the communiqué raised the
prospect of the EU moving to “phase three”
sanctions, which are aimed at whole economic sectors, if Russia fails to meet demands that it use its influence with Ukrainian rebels to ensure the crash site is
preserved intact for investigation and that
the flow of weapons and fighters from its
territory into Ukraine be halted.
From Rostov, with Buks
That the Russians are supplying the rebels
is not open to doubt. Indeed, a recent increase in the flow of supplies seems to
have set the scene for the tragedy.
On July 1st Petro Poroshenko, Ukraine’s
president, brought to an end a ceasefire in
the east of the country which had lasted
for ten days and which, he claimed, the rebels had broken 100 times. He was betting
that Ukraine’s armed forces, their morale
boosted through the expedient of newly
regular pay as well as training and better
maintenance for their equipment, could
take on and defeat 10,000-15,000 rebels
armed mainly with light weapons and a
few elderly tanks. On July 5th, after an artillery bombardment, Ukrainian forces hoisted their blue and yellow flag over the strategically important town of Sloviansk,
which had been the military headquarters
of the insurrection. Air power was a big
part of the success. Though the rebels had
shot down several planes and helicopters
using Strela-2 shoulder-fired missiles, they
were impotent against anything flying
above 2,000 metres.
The separatists’ military leader, Igor Girkin (aka Igor Strelkov), a former or possibly
current Russian intelligence officer, pleaded with Mr Putin for help in turning the
tide. Although Mr Putin would not send
the troops that Mr Girkin wanted, he was
willing to provide him with enough weapons and assistance to stay in the game.
Since late June small convoys of Russian heavy weapons had been flowing
into the Luhansk region of Ukraine from a
deployment and training site set up near
Rostov by the separatists’ Russian military
helpers, according to Western intelligence
sources. On July 13th, at about the same
time that Mr Putin was sitting down to
watch the World Cup final with Angela
Merkel, the German chancellor, American
sources say that a much bigger convoy of
around 150 vehicles made the journey. It is
said to have included tanks, artillery, Grad
Home at last
Stop all the windmills
AMSTERDAM
The Dutch show resolve and restraint
J
ULY 23rd was a day of national mourning in the Netherlands, the first since
the death of Queen Wilhelmina more
than 50 years ago. Broadcasters dispensed with advertising and game
shows; the windmills stopped turning,
their sails set slightly off-kilter in a way
that has betokened grief for centuries. At
Eindhoven airport two Hercules transport planes were met on the tarmac by
40 hearses and over1,000 relatives desperately hoping their loved ones were in
one of the wooden coffins. The country
came to a solemn standstill.
The Dutch lost 193 of their fellow
citizens on MH17. As a share of the Netherlands’ population that is greater than
America’s loss in the attacks of September11th. All the bodies, Dutch and otherwise, that have so far been taken by
train from the crash site to Kharkiv will
have been transferred to a medical facility in Hilversum by July 25th. It will take
weeks, if not months to identify them. An
unknown number, perhaps as many as
Returned with dignity
rocket launchers, armoured personnel carriers and Buk missile systems. Russia flatly
denies having sent any such missiles.
Whether it was a missile delivered by
that convoy that brought down MH17 is unknown. There were reports in late June
that the rebels had captured such missiles
from the Ukrainians, though the Ukrainians deny this and it may well have been
deliberate Russian misinformation. But
100, remain unrecovered.
The nation’s grief did not, for the most
part, break out into anger. The Dutch are
pragmatic, and both parliament and
people knew that an aggressive stance
was unlikely to achieve their most pressing goal, the return of the dead. Ko Colijn,
who runs Clingendael, the Netherlands’
leading foreign-relations think-tank, says
that keeping discussions with Russia
businesslike was a good way for Mark
Rutte, the prime minister, to achieve the
nation’s goals: “Let Washington, London
and Melbourne do the shouting.” But
faced with images of disrespect and
looting, the calm demeanour of the
Dutch was stretched to breaking point
and, in the popular press, beyond.
Another reason for an unwillingness
to blame Russia openly and definitively
is that, in 2003, then-prime-minister Jan
Peter Balkenende ignored his own intelligence services and relied on Tony
Blair’s word when lending the country’s
support to the invasion of Iraq. Since then
the Dutch have been distinctly iffy about
relying on American or British spies. And
as home to the International Court of
Justice the country takes some pride in
seeing things done by the book.
Once all the bodies are home, though,
the mood may change. “People have a
hard time matching balancing acts with
atrocities,” says Marietje Schaake, a
Dutch MEP for the liberal-democrat D66.
The government has cuddled up uncomfortably close to Vladimir Putin in search
of ever better trade relations; at the Sochi
Olympics the king shared a cool Heineken and a photo-op with him while
others offered only cold shoulders. There
may be a backlash.
With the Netherlands now leading the
investigation into who is to be held accountable for the outrage Mr Rutte will
have to keep balancing the need to channel public anger and the need for “justice
to be served”. It will be a struggle for him
and his country to keep cool heads when
their hearts hurt so badly.
successful attacks on aircraft started
straight after the convoy’s arrival. On July
14th a Ukrainian military cargo plane with
eight people on board was brought down a
few kilometres from the Russian border.
The aircraft was flying at 6,500 metres, well
beyond the range of shoulder-fired missiles. The following day a Ukrainian Su-25,
a ground-attack fighter that has been used
extensively against rebel positions, was 1
missile strike but managed to land.
It may be significant that the pictures
showing the Bukmissile launcher that shot
down MH17 on its way to Chernukhino
show it travelling alone. In normal operations the launcher would be accompanied
by separate vehicles carrying radar and
control facilities. Without these the system
would have lacked, among other things, an
ability to sense the transponders that civilian aircraft carry. Assuming that the crew
wanted to shoot down another Ukrainian
military transport, this lack would have
made it easier for them accidentally to hit a
passenger jet flying both higher and faster
than any such target.
LITHUANIA
Moscow
BELARUS
POLAN
D
2 hit. On July 16th another Su-25 suffered a
Briefing MH17 and the war in Ukraine 19
RUSSIA
250 km
Kiev
Lviv
U K R A I N E
Donetsk
MOLDOVA
ROMANIA
Odessa
CRIMEA
Sochi
Black Sea
BU LG A RIA
GEORGIA
50 km
Belgorod
The show must go on
That it was indeed a mistake is hard to
doubt, not least because it clearly put Mr
Putin on the defensive. In the days after the
attack he threw himself into a frenzy of
diplomatic and public activity, talking repeatedly to Mrs Merkel and Mark Rutte, the
Dutch prime minister, as well as to the
leaders of Australia, Britain and France. On
July 21st he gave an address to the nation
unremarkable in every way other than its
timing; it was broadcast in the middle of
the Moscow night, which means just before the previous evening’s prime time on
America’s east coast. Having asked for concessions it did not receive, Russia still
backed the Security Council’s resolution
calling for a full investigation and for those
responsible to be held to account, a resolution which accordingly passed unanimously. For all his anti-Westernism, Mr Putin cares about his international image
enough to want to avoid defeat.
He cares even more about his power at
home. The Russian people are keen on
both the war in Ukraine and Mr Putin: his
approval rating is a remarkable 83%. Gleb
Pavlovsky, a former Kremlin consultant,
wrote recently that Russians see the war as
a “bloody, tense and emotionally engaging” television drama that has little to do
with reality but which they want to see
continue. Mr Putin prospers as the drama’s
producer and leading man; he cannot rewind the narrative in such a way as to extricate himself.
But the audience’s enthusiasm does not
mean it wants to pay to keep watching. So
far the sanctions imposed in response to
Russia’s annexation of Crimea have
seemed of greater symbolic than economic importance, and this plays to Mr Putin’s strengths. In Russia he controls the
symbols. But serious economic sanctions
of the sort to which the EU seems to have
inched closer could do him genuine harm,
given the already stagnant economy.
If concern along those lines led to Mr
Putin’s efforts on the international stage,
though, it does not seem to have changed
the situation in eastern Ukraine, or the
R
U
S
S
I
A
Kharkiv
K H A R K I V
U K R A I N E
LUHANSK
Sloviansk
DNIPROPETROVSK
D O
N
Donetsk
B A
Luhansk
S
Chernukhino
Grabovo
Snizhne
DONETSK
ZAPORIZHIA
Rostovon-Don
Mariupol
Sea of Azov
MH17:
flight
path
crash
site
show being offered to Russian television
audiences. The rebels are still using
ground-to-air missiles; they brought down
two Su-25s on July 23rd, though they did
not use Buks to do so. Mr Poroshenko says
that weaponry is still rolling over the border to the rebel forces (which he wants the
West to designate as terrorists, saying it
would be “an important gesture of solidarity”). American intelligence sources say
their analysis, too, points towards continuing supply from Russia.
One explanation for the lack of change
could be that Mr Putin does not believe
that Europe will act decisively. The evidence of history seems to be on his side.
Though on July 22nd the council of ministers sent a stronger message than it had before, Europe retains a deep ambivalence
about inflicting real economic pain on Russia. In a newspaper article on July 20th David Cameron, Britain’s prime minister, told
fellow European leaders: “It is time to make
our power, influence and resources count.
Our economies are strong and growing in
strength. And yet we sometimes behave as
if we need Russia more than Russia needs
us…” They—including Britain, fearful of
damage to the City of London—could well
continue so to behave.
The most obvious evidence of this is
France’s determination to go through with
the sale of the first of two Mistral-class helicopter carriers to Russia. Other nations
have demanded the contract be halted, but
President François Hollande fears that reneging would endanger shipbuilding jobs
at the Saint-Nazaire dockyard, incur stiff financial penalties, leave France with expensive ships it has no use for and damage
its reputation for dependability among
other countries thinking about entering
into arms contracts with it.
That said, sticking with the deal also
poses risks to France’s reputation—and to
its military equipment makers. The NATO
country which is currently investing most
in defence is Poland, with a budget of $46
billion (see page 46). France is well placed
to sell it combat helicopters and other expensive kit. But François Heisbourg of the
Foundation for Strategic Research, a thinktank, points out that Poland, staunchly opposed to Putin’s power play in the Ukraine,
is unhappy about the sale of the Mistrals
and unlikely to welcome French armssales teams in its aftermath.
Mr Hollande this week tried to deflect
the pressure by saying that while the Vladivostok would be delivered this autumn as
agreed, delivery of the second such ship—
the Sevastopol, ironically—it is building for
Russia would depend on Mr Putin’s good
behaviour. Meanwhile the head of his Socialist party, Jean-Christophe Cambadélis,
hit back at British criticism of the deal, noting that many Russian oligarchs had
“sought refuge in London”, and added:
“this is a false debate led by hypocrites.”
France is demanding that, in any phasethree sanctions, Britain act on Russian financial transfers through the City. Germany for its part would be expected to contribute by restricting Russia’s access to high
technology, especially in the energy sector.
That is more conceivable than it was;
German opinion seems to be turning. “Nobody can blame Germany for not having
taken efforts to talk,” says the German foreign minister, Frank-Walter Steinmeier.
“But Russia did not stick to the agreements
to the necessary extent.” The day after the
foreign ministers’ meeting Germany’s
mass-circulation Bild, unimpressed, ran a
headline mocking the EU for its Empoerend
Untaetig—outrageous inactivity. But if this
signals a new German toughness, it is a
stance that will build up over months or
years, not in weeks.
Doubling down
As Europe plays, at best, a long game, Mr
Poroshenko is hoping to regain control of
the east of his country with a decisive offensive. Much will depend on his tactics.
Ukrainian forces have been making liberal
use of air strikes and Grad rockets as they
move toward Donetsk. On July18th 16 civil- 1
20 Briefing MH17 and the war in Ukraine
Another piece of the evidence: the expanding base near Rostov
2 ians were killed in shelling; on July 21st Uk-
rainian Grad rockets killed four civilians
south of Donetsk airport. “Do I look like a
terrorist?” asked Galina Afrena, a woman
of 60, as she surveyed the damage wearing
a leopard-print dress and carrying a jar of
homemade fruit juice. The Ukrainians say
they are under strict orders not to use artillery or air strikes on Donetsk, a city of nearly a million people. If those orders are fol-
lowed, it will mark a significant change.
It is natural to expect an enormity to be
a turning point. There is a depressing
chance, though, that MH17 will remain an
unfathomable aberration. Ukraine, the rebels and Russia show every sign of eschewing any opportunity it might offer for
reflection and reconciliation. The incompatibility of their interests has only been
thrown into sharper relief. 7
Airline safety
Flight over fight
Despite the downing of MH17 planes will continue to fly over trouble spots
P
LANNING a car journey that passed 10
kilometres from a war zone would
strike most people who had other options
as an act of folly. Yet such modest vertical
separation from military engagements, albeit hurtling at more than 800km an hour,
is routine for passenger jets. Airlines bring
civilians and combatants into such proximity because it is generally considered
safe to do so. Despite the shooting down of
Malaysia Airlines flight MH17 over eastern
Ukraine showing that this is not necessarily the case, it is unlikely that the practice
will change much.
Within certain constraints airlines
choose their own flight paths, which they
have to file with the air-traffic controllers
of all the countries their proposed route
flies over. But the plans have to take into account local restrictions and “notices to airmen” (NOTAMs), which advise of danger
in specific places and at specific airports, issued both by the aviation authorities
where the carriers are registered and those
of the countries they are flying over.
The choice of flight path is normally a
matter of looking for the most fuel-efficient
route, but the company’s sense of security
can come into play. Thus after a rocket
launched from Gaza landed within a couple of kilometres of Tel Aviv’s Ben Gurion
airport on July 22nd (see page 39) a number
of airlines decided to cancel flights bound
there. America’s Federal Aviation Authority (FAA) subsequently issued a NOTAM
advising pilots that they should avoid the
airport.
There were various NOTAMs in place
restricting flights over Ukraine at the time
MH17 was shot down, but it was not in contravention of any of them. Some airlines
were, it seems, already avoiding the area,
but many others were routing aircraft
along the flight path MH17 used, which is
popular with regional traffic as well as
long-haul flights linking northern Europe
to the mega-cities ofAsia. The FAA and other Western regulators had issued NOTAMs
warning against flying over Crimea, but
that was because, since the peninsula’s an-
nexation, Russian and Ukrainian air-traffic
controllers have both claimed responsibility for the airspace, posing a risk of a midair collision. That worry did not apply over
eastern Ukraine more generally.
A NOTAM issued by Ukraine on July 1st
barred flying below 8,000 metres (26,000
feet) in the east of the country, which was a
sign the authorities knew that battle was
taking to the sky. On July 14th the exclusion
zone was extended to 9,750 metres. This
may have been because Ukraine’s armed
forces wanted to ensure that the skies were
clear to carry out military operations. MH17
was flying at 10,000 metres when the missile struck. The skies of the region have
since been empty of commercial traffic.
Should they have been emptied earlier?
Airlines have for years flown over wartorn places, such as Iraq and Afghanistan.
The risks of doing so are judged negligible
because high-flying passenger jets are either not treated as targets by those on the
ground or out of range of the weapons
they have access to. Instances of planes being felled mid-flight are mercifully rare and
have been the result of error on the part of
the forces in control of the missiles; this
was the case when Ukrainian forces shot
down a Russian plane during a military exercise in 2001 and when the USS Vincennes
shot down an Iranian airliner in 1988.
Deliberate missile attacks, such as the
attempted downing by terrorists of an Israeli passenger plane taking off from Mombasa in 2002, are far more likely at take-off
or landing. Israel’s El Al has plans to fit its
planes with anti-missile systems designed
to reduce such risks by dazzling the missiles with lasers. These can offer protection
against small projectiles fired by individuals at close range, but not against the sophisticated system that downed MH17.
Airlines and governments could have
been more cautious. Big carriers have security departments that assess risks over and
above those specifically mentioned in NOTAMs. It is probably on this basis that BA,
though reluctant to give details, seems to
have stopped flying over eastern Ukraine
some months ago. American airlines,
which the FAA tells not to fly over Iraq and
Iran among other danger spots, have
avoided the area for a while, too. Similarly,
most commercial flights are avoiding Syrian airspace, where the FAA strongly discourages overflights.
Airlines and regulators are sure to take
fewer risks with flight planning from now
on; the reaction to the rocket at Tel Aviv
might have been more muted had it happened before the MH17 disaster. Intelligence showing sophisticated surface-to-air
missiles in the hands of irregular forces, as
in Ukraine, will probably be acted on more
readily in future. But diverting around war
zones where the risks remain minimal will
add to costs and flight times. Avoiding every hint of conflict is nigh-on impossible. 7
United States
25 Down with helicopter parents
26 The death penalty in California
26 A new threat to Obamacare
27 Collins v Bellows in Maine
28 Lexington: Daydreaming of Elizabeth
Warren
For daily analysis and debate on America, visit
Economist.com/unitedstates
Economist.com/blogs/democracyinamerica
Parenting in America
Choose your parents wisely
BETHESDA, MARYLAND AND CABIN CREEK, WEST VIRGINIA
There is a large class divide in how Americans raise their children. Rich parents can
afford to ease up a bit; poor parents need help
S
HANA, a bright and chirpy 12-year-old,
goes to ballet classes four nights a week,
plus Hebrew school on Wednesday night
and Sunday morning. Her mother Susan, a
high-flying civil servant, played her Baby
Einstein videos as an infant, read to her
constantly, sent her to excellent schools
and was scrupulous about handwashing.
Susan is, in short, a very conscientious
mother. But she worries that she is not. She
says she thinks about parenting “all the
time”. But, asked how many hours she
spends with Shana, she says: “Probably
not enough”. Then she looks tearful, and
describes the guilt she feels whenever she
is not nurturing her daughter.
Susan lives in Bethesda, an azalea-garlanded suburb of Washington, DC packed
with lawyers, diplomats and other brainy
types. The median household income, at
$142,000, is nearly three times the American average. Some 84% of residents over
the age of 25 are college graduates, compared with a national norm of 32%. Couples who both have advanced degrees are
like well-tended lawns—ubiquitous.
Bethesda moms and dads take parenting seriously. Angie Zeidenberg, the director of a local nursery, estimates that 95% of
the parents she deals with read parenting
books. Nearly all visit parenting websites
or attend parenting classes, she says.
Bethesda children are constantly stimulated. Natalia, a local four-year-old, watches her three older siblings study and wants
to join in. “She pretends to have homework,” says her mother, Veronica; she sits
next to them and practises her letters.
Veronica is an accountant; her husband
is an engineer. Their children “all know
that school doesn’t end at 18,” says Veronica. “They assume they’ll go to college and
do a master’s.” Asked how often she
checks her various children’s progress on
Edline, the local schools’ website that
shows grades in real time, she admits:
“More than I should, probably.”
In “Coming Apart”, Charles Murray, a
social scientist, ranked American zip codes
by income and educational attainment.
Bethesda is in the top 1%. Kids raised in
such “superzips” tend to learn a lot while
1
Fewer chores, more bedtime stories
Average number of hours per week spent on:
Mothers*
Fathers*
60
child care
1965
child care
60
50
50
40
housework 40
housework 30
30
20
paid work 20
paid work 10
10
0
85 95 2011
Sources: Pew Research Centre;
Bureau of Labour Statistics
1965
0
85 95 2011
*Adults aged 18-64 with at
least one child under 18
living in household
young and earn a lot as adults. Those
raised in not-so-super zips are not so lucky.
Consider the children of Cabin Creek,
West Virginia. The scenery they see from
their front porches is more spectacular
than anything Bethesda has to offer: the
Appalachian Mountains rather than the
tree-lined back streets of suburbia. But the
local economy is in poor shape, as the coal
industry declines. The median household
income is $26,000, half the national average. Only 6% of adults have college degrees. On Mr Murray’s scale, Cabin Creek
is in the bottom 10%.
Melissa, a local parent, says that her son
often comes home from school and announces that he has no homework. She
does not believe him, but she cannot stop
him from heading straight out across the
creek to play with his friends in the woods.
She has other things to worry about.
The father of her first three children died.
The father of her baby is not around. Her
baby suffers from a rare nutritional disorder. And Melissa has to get by on $420 a
month in government benefits. Small
wonder that she struggles to enforce
homework. And small wonder the gap between haves and have-nots in America is
so hard to close.
Parenting has changed dramatically in
the past half-century. When labour-saving
products such as washing machines, dishwashers and ready meals started to spread,
people naturally assumed that parents
would soon have much more free time.
Not so. Although the average American
couple spent eight hours a week less on
household chores in 2011 compared with
1965, according to the Pew Research Centre,
more than all of this extra time was gobbled up by child care (see chart 1). Women
now devote an extra four hours a week to
looking after their offspring; men devote
an extra four and a half. This is largely a 1
22 United States
2 good thing. For most people, teaching a kid
to ride a bike is more rewarding than washing dishes. A different Pew survey finds
that 62% of parents find child care “very
meaningful”, a figure that falls to 43% for
housework and only 36% for paid work.
However, there are two worries about
modern parenting. One concerns “helicopter parents” (largely at the top of the social
scale), who hover over their children’s
lives, worrying themselves sick, depriving
their offspring of independence and doing
far more for them than is actually beneficial. This gets a lot of attention, probably
because media folk belong to the helicoptering classes (see box on next page). The
other worry concerns parents at the bottom, who struggle to prepare their children
for a world in which the unskilled are marginalised. This is far more important.
In a study in 1995, Betty Hart and Todd
Risley of the University of Kansas found
that children in professional families heard
on average 2,100 words an hour. Workingclass kids heard 1,200; those whose families lived on welfare heard only 600. By
the age of three, a doctor’s or lawyer’s child
has probably heard 30m more words than
a poor child has.
Well-off parents talk to their school-age
children for three more hours each week
than low-income parents, according to
Meredith Phillips of the University of California, Los Angeles. They put their toddlers
and babies in stimulating places such as
parks and churches for four-and-a-half
more hours. And highly educated mothers
are better at giving their children the right
kind of stimulation for their age, according
to Ariel Kalil of the University of Chicago.
To simplify, they play with their toddlers
more and organise their teenagers.
The Adventures of Supermom
“I talk to him constantly,” says Lacey, another Bethesda mother, of her two-yearold son. “As we go through the day, I talk
about what we’re doing. I try to make the
regular tasks interesting and fun, like going
to the grocery store.” Her older son, who is
five, devours maths apps and asks his
mother questions about arithmetic. At the
weekend the family might go to the American History Museum or the Washington
Zoo or a park.
Cabin Creek parents love their children
just as much as Bethesda parents do, but
they read to them less. It doesn’t help that
they are much more likely to be raising
their children alone, like Melissa. Only 9%
of American women with college degrees
who gave birth in the past year are unmarried; for those who failed to finish high
school the figure is 61%. Two parents have
more time between them than one.
And even two-parent families in Cabin
Creek tend to be more stretched than those
in Bethesda. Sarah, another Cabin Creek
mom, has a sick mother and a husband
2
The parenting gap
Percentage of parents who are among the:
most effective
least effective
By family
income quintile
Richest 20%
0
10
20
30
40
50
4th quintile
3rd quintile
2nd quintile
Poorest 20%
By mother’s
education
Bachelor’s degree
or better
Some college
High-school (HS)
diploma
Less than HS
diploma
Source: Richard V. Reeves and Kimberly Howard,
“The Parenting Gap”, September 2013
who was injured in a coal mine. Her three
boys, two of whom make it a point of pride
to be on the naughty kids list at school, exhaust her. She helps them with their homework and reads to them fairly regularly, but
often just lets them watch television. “Dora
the Explorer” is somewhat educational,
she says: “It’s got Spanish in it.”
Children with at least one parent with a
graduate degree score roughly 400 points
higher (out of 2,400) on the Scholastic Aptitude Test (a test used for college entrance)
than children whose parents did not finish
high school. This is a huge gap. It is hard to
say how much it owes to nurture and how
much to nature. Both usually push in the
same direction. Brainy parents pass on
their genes, including the ones that predispose their children to be intelligent. They
also create an environment at home that
helps that intelligence to blossom, and
they buy houses near good schools.
Nonetheless, there is evidence that parenting matters. After reading enough
scholarly papers to make a life-sized papier-mâché elephant, Richard Reeves of the
Brookings Institution, a think-tank, concludes that it accounts for about a third of
the gap in development between rich and
poor children. He argues that the “parenting gap” is more important than any other.
The two aspects of parenting that seem
to matter most are intellectual stimulation
(eg, talking, reading, answering “why?”
questions) and emotional support (eg,
bonding with infants so that they grow up
confident and secure). Mr Reeves and his
Brookings colleague Kimberly Howard
take a composite measure of these things
called the HOME scale (Home Observation
for Measurement of the Environment) and
relate it to how well children do in later life,
using data from a big federal survey of
those born in the 1980s and 1990s.
The results are striking. Some 43% of
mothers who dropped out of high school
were ranked among the bottom 25% of parents, as were 44% of single mothers. The
gap between high- and middle-income
parents was small, but the gap between the
middle and the bottom was large: 48% of
parents in the lowest income quintile were
also among the weakest parents, compared with 16% of the parents in the middle
and 5% in the richest (see chart 2).
Likewise, the difference between highschool dropouts and the rest was far greater than the gap between high-school and
college graduates. Mr Reeves and Ms Howard estimate that if moms in the bottom
fifth were averagely effective parents, 9%
more of their kids would graduate from
high school, 6% fewer would become teen
parents and 3% fewer would be convicted
of a crime by the age of19.
From a public-policy perspective, nature is a given. Individuals can influence
the genes their children inherit, by choosing the right partner, but the state is concerned only with how children are nurtured. America lavishes public money on
school-age children (more than $12,000
per pupil each year, or nearly one and a
half times the rich-country average) but
virtually ignores the very young, despite
strong evidence that the earliest years matter most. Only 67% of American three- to
five-year-olds and 42% of under-threes are
enrolled in formal child care or preschool.
In France it is 100% and 48%.
Government meddling in parenting is
politically touchy. As Mr Reeves writes:
“Conservatives are comfortable with the
notion that parents and families matter,
but too often simply blame the parents for
whatever goes wrong. They resist the notion that government has a role in promoting good parenting.” As for liberals, they
have “exactly the opposite problem. They
have no qualms about deploying expensive public policies, but are wary of any
suggestion that parents—especially poor
and/or black parents—are in some way responsible for the constrained life chances
of their children.”
Nothing the government can do will
give the children of Cabin Creek the same
life chances as the children of Bethesda.
But weak parents can learn to be stronger,
and outsiders can sometimes help them.
In West Virginia, for example, an organisation called Zero to Three (as in, 0-3 years
old) sends “parent educators” to families.
They find them via the local maternity
clinic, visit their homes and identify the
parents most in need of help by looking for
simple clues. For example, are there fewer
than ten books visible? Does the family go
out less than once a week?
The parent educators don’t just nag parents to read to their offspring more and hit
them less. They also teach them how to in- 1
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2 teract with their kids in ways that stretch
their minds: reasoning with them, answering their questions and teaching them basic skills. “I see a lot of parents doing things
for their children because it saves time,”
says Heather Miller, a parent educator.
“Even one mom who tied her 12-year-old
son’s laces. You have to learn to stop and let
him do things for himself.”
A home visit is supposed to be fun. Visiting a five-year old called Lily, Ms Miller
brings a game called “Five Little Monkeys”,
based on a popular nursery rhyme. It involves numbers, artful propaganda in favour of going to sleep and the thrill of
watching plastic monkeys fall off a springloaded bed. Lily plays merrily, though her
commentary is revealing. Asked to mime
brushing her teeth, she says she uses bottled water because the stuff from the tap is
“bad”. (A recent chemical spill polluted the
nearby river.)
When Lily was 18 months old, she did
not talk. Zero to Three had her checked out
and found that it was nothing to do with
her intelligence: she simply had weak muscles in her mouth. The cure was cheap and
jolly: her mom was shown how to tear up
little bits of paper, scatter them on a table
and dare Lily to blow them off through a
straw. This strengthened her mouth muscles; now she chatters non-stop.
Helping parents teach
Parent educators hand out books as presents for the kids and offer leaflets to the
parents. “Of the nine families I see, none
buy[s] parenting books. But most look at
the material I leave,” says Jennifer Parsons,
another parent educator. The programme
in West Virginia is cheap: about $1,800 per
family each year. It has not been around
long enough for its effectiveness to be assessed, but others have. A review of 11
home-visiting programmes by the federal
health department found that seven led to
at least two lasting benefits (eg, making the
child healthier or better-prepared for
school). A pre-school programme called
HIPPY, which aims to teach parents how to
be their children’s first teachers, appears to
boost reading scores significantly.
Do such benefits last? In the 1960s a
group of vulnerable pre-schoolers in Michigan were randomly selected either to enroll in a programme of daily coaching from
well-trained teachers plus weekly home
visits, or to join a control group. The early
results were amazing: after a year the kids
who took part were outscoring the control
group by ten IQ points.
Disappointingly, that difference faded
by the age of ten, leading many to doubt
that the Perry project (named after the
school where it took place) actually
worked. However, even if it didn’t boost
their IQ scores for long, the intervention
appears to have taught them other useful
skills, such as self-discipline and persever-
United States 25
Stressed parents
Cancel that violin class
BETHESDA, MARYLAND
Helicopter moms and dads will not harm their kids if they relax a bit
W
ELL-TO-DO parents fear two things:
that their children will die in a freak
accident, and that they will not get into
Harvard. The first fear is wildly exaggerated. The second is not, but staying awake
all night worrying about it will not help—
and it will make you miserable.
Modern parents see risks that their
own parents never considered. They put
gates at the top of stairs, affix cushions to
table corners and jam plastic guards into
sockets to stop small fingers from getting
electrocuted. Those guards are “potential
choking hazards”, jests Lenore Skenazy,
the author of “Free-Range Kids”. Ms
Skenazy let her nine-year-old son ride the
New York subway on his own. He was
thrilled; but when she spoke about it on
TV, a mob of worrywarts called her
“America’s worst mom”.
Yet in fact American children are
staggeringly safe. A kid under five in the
1950s was five times as likely to die (of
disease, in an accident, etc) than the same
kid today. The chance of a child being
kidnapped and murdered by a stranger is
a minuscule one in 1.5m.
What about academic success? Surely
the possibility of getting into Harvard
justifies any amount of driving junior
from violin lesson to calculus tutor?
Bryan Caplan, an economist at
George Mason University, says it does
not. In “Selfish Reasons To Have More
Kids”, he points to evidence that genes
matter far more than parenting. A Minnesota study found that identical twins
grow up to be similarly clever regardless
of whether they are raised in the same
household or in separate ones. Studies in
Texas and Colorado found that children
adopted by high-IQ families were no
smarter than those adopted by average
families. A Dutch study found that if you
are smarter than 80% of the population,
you should expect your identical twin
raised in another home to be smarter
than 76% but your adopted sibling to be
average. Other twin and adopted studies
find that genes have a huge influence on
academic and financial success, while
parenting has only a modest effect.
The crucial caveat is that adoptive
parents have to pass stringent tests. So
adoption studies typically compare nice
middle-class homes with other nice
middle-class homes; they tell you little
about the effect of growing up in a poor
or dysfunctional household.
The moral, for Mr Caplan, is that
middle-class parents should relax a bit,
cancel a violin class or two and let their
kids play outside. “If your parenting style
passes the laugh test, your kids will be
fine,” he writes. He adds that if parents
fretted less about each child, they might
find it less daunting to have three instead
of two. And that might make them happier in the long run. No 60-year-old ever
wished for fewer grandchildren.
Does over-parenting hurt children?
Probably not; but it exhausts parents.
Hence the cascade of books with titles
like “All Joy And No Fun” and “Go The
F**k To Sleep”. Kids notice when their
parents are overdoing it. Ellen Galinsky, a
researcher, asked 1,000 kids what they
would most like to change about their
parents’ schedules. Few wanted more
face time; the top wish was for mom and
dad to be less tired and stressed.
ance. The Perry pre-schoolers were far
more likely than the control group to graduate from high school on time (77% to 60%).
And by the age of 40, they were more likely
to earn $20,000 a year or more (60% to
40%) and less likely to have been arrested
five times or more (36% to 55%).
Perry generated $16 of benefit for every
$1 spent on it, by one estimate. Another
pre-school programme in Chicago showed
a benefit-to-cost ratio of 10 to 1; the Elmira
project in upstate New York was five to
one; the Abecedarian project in North Carolina was four to one.
All this suggests that, when it comes to
education, the best returns will come not
from pumping yet more money into
schools but from investing in the earliest
years of life. And that includes lending a
helping hand to parents who struggle. 7
26 United States
The death penalty in California
Cruel and unusual
NEW YORK
A judge strikes a blow against capital
punishment
T
HERE are two reasons for arguing that
the death penalty is a “cruel and unusual punishment”, and thus unconstitutional. One was on grim display in Arizona on
July 23rd, when Joseph Wood, a doublemurderer, took nearly two gasping, choking hours to die by lethal injection. The
other came under legal attack on July 16th,
when a federal judge, Cormac Carney,
struck down capital punishment in California for being too slow and capricious.
In Jones v Chappell Judge Carney struck
down the 1995 death sentence of Ernest
Jones (pictured), who raped and murdered
his girlfriend’s mother. Mr Carney also
overturned 747 other capital sentences.
Awaiting execution for decades “with
complete uncertainty as to when, or even
whether, it will ever come,” Mr Carney
wrote, is a punishment “no rational jury or
legislature could ever impose.”
Ofthe more than 900 people California
has sentenced to death since 1978, only 13
have been executed. The last one died in
2006. The same year, a federal court ruled
that California’s mode of lethal injection
carried a risk that “an inmate will suffer
pain so extreme” that it should be considered cruel and unusual.
With Mr Carney’s ruling, the state’s system of capital punishment has been
judged doubly unfit. The average prisoner
who is executed in California has spent 25
years on death row—much longer than the
national average of nearly 16 years. Such
long delays make it unlikely that capital
punishment deters other potential murderers, ruled Mr Carney.
Legal observers are surprised by the
broad sweep of the ruling but divided
about its potential impact. For James
Ching, a former deputy attorney-general in
California, Mr Carney’s opinion is “quixotic” and errs by attributing all the tarrying to
California state courts when federal courts
are responsible for “46.2% of the total delay
and dysfunction”. The Ninth Circuit Court
of Appeals, Mr Ching suggested, will likely
regard Mr Carney’s decision sceptically
when the state appeals.
But Gil Garcetti, a former Los Angeles
County district attorney, has said the Jones
ruling is “historic” and shows that “the
death penalty is broken beyond repair.”
California may have the largest and slowest-moving death row in the country, but it
is not the only state where condemned
prisoners are more likely to die of old age
than the needle. The central point in Mr
19 years on death row is long enough
Carney’s opinion, says Diann Rust-Tierney,
head of the National Coalition to Abolish
the Death Penalty, is “not simply the length
of time” between conviction and execution. “It is the unpredictability.”
Stephen Bright of the Southern Centre
for Human Rights says that California’s
death penalty is “uniquely dysfunctional”.
If and when the case reaches the Supreme
Court, it is unclear how it will fare, but Justice Stephen Breyer has been receptive to
the delay argument and Justice Anthony
Kennedy recently hinted that he doubted
that waiting 35 years to die was “consistent
with the purposes that the death penalty is
designed to serve”. Mr Carney’s decision,
says Mr Bright, “has added to the conversation in a way that will lead to the inevitable
end of the death penalty in California and
the United States.” 7
Health insurance
Clear as mud
NEW YORK
A new legal threat to Obamacare
N
ANCY PELOSI, a former Democratic
Speaker of the House, once said that
“we have to pass [Obamacare] so that you
can find out what is in it.” It turns out she
was wrong. The Affordable Care Act was
passed in 2010. But four in ten Americans
still say they don’t understand how it will
affect them. And judges can’t figure out
what it means, either.
On July 22nd two appeals courts offered utterly contradictory interpretations.
In Halbig v Burwell, a three-judge panel in
Washington, DC ruled that Obamacare
does not empower the government to offer
subsidies to Americans who buy health insurance through federal exchanges. A couple of hours later in King v Burwell, a panel
in Virginia took the opposite view.
For now, Barack Obama’s lawyers say
that nothing will change. But how this
mess is sorted out will matter a lot. Republicans have attacked Obamacare for years,
to little avail. But if Halbig stands, it could
be the tugged thread that causes the whole
reform to unravel.
Obamacare requires all Americans to
have health insurance or pay a fine, and
obliges insurers to charge the sick and the
healthy the same premium. It urges states
to create exchanges where individuals can
shop for insurance. To make that insurance
affordable, it offers subsidies to individuals
earning between $11,670 and $46,680 a
year. (Many of those who make less than
that will qualify for Medicaid, a public
health programme for the poor.)
Amazingly, it took nearly 1,000 pages of
gobbledygook to turn this framework into
the law of the land—excluding the much
larger volume of supplementary regulations. Since the federal government could
not force states to set up health-insurance
exchanges, Obamacare created a fallback.
In states that did not create an exchange,
the federal government could do so on its
behalf. To Democrats’ surprise, 36 states
left the job to Uncle Sam.
Unfortunately Obamacare’s text stipulates that subsidies are available through
exchanges “established by the State”. It
does not mention subsidies for people
who enrolled via federal exchanges. In
2012 the Internal Revenue Service (IRS)
said it was fine to interpret the law as providing subsidies on both state and federal
exchanges. The plaintiffs in Halbig and King, along with those in two other pending
cases, argued that since the law did not explicitly allow subsidies on federal exchanges, they are illegal.
Mr Obama’s lawyers insist that Congress intended to make Obamacare subsidies broadly available. Two out of three
judges in Halbig had no time for this argument. They declared that “a federal exchange is not an ‘exchange established by
the State’ ” and the law “does not authorise
the IRS to provide tax credits for insurance
purchased on federal exchanges.” Earlier,
in oral arguments, Judge A. Raymond Randolph had quipped, “If the legislation is
just stupid, I don’t see that it’s up to the
court to save it.” The judges in Virginia, by
contrast, sided with the IRS, explaining:
“we uphold the rule as a permissible exercise of the agency’s discretion.”
The resulting confusion should leave
Republicans elated. They have new reason
to hope that Obamacare will collapse. And
they have new support for their claim that
Mr Obama is a feckless autocrat who ignores the law. But the rulings have implica1
tions far beyond the political.
2
If Halbig stands—something that may
remain uncertain until the matter reaches
the Supreme Court—the IRS will be unable
to fork out insurance subsidies in the 36
states with federal exchanges. That would
jeopardise Obamacare’s mandate that employers above a certain size offer health insurance for their staff—the penalties that
back up this rule kick in when a worker receives a subsidy on a public exchange.
More importantly, Halbig would scrap
subsidies for nearly 5m people who received them this year. If those people remain in the same health plans, the amount
they would have to pay out of their own
pocket for insurance would jump by an average of 76%. However, many would be
able to claim that they could not afford this,
so they would become exempt from the individual mandate. That would, in turn, undermine the broader individual market. If
too few healthy people bought coverage,
prices would rise, making them even less
likely to buy insurance in the future. Obamacare has faced many frivolous threats.
This one could be existential. 7 Susan Collins
Her reign in Maine
is easy to explain
AROOSTOOK COUNTY, MAINE
A fresh-faced Democrat takes on a
powerful, popular Republican
P
OTATOES are serious business in
Aroostook County. For miles along the
roads of this sparsely populated part of
Maine all you can see are potato fields.
Stands selling hefty bags of new potatoes
for $5 are more common than lobster
shacks. In mid-July when the potato blossoms are in full bloom, the little town of
Fort Fairfield hosts the Maine Potato Blossom festival, with a Potato Queen beauty
pageant, a tractor pull and a parade.
Susan Collins (pictured, left), a Republican from Aroostook who is looking to hold
on to her United States Senate seat, and
Shenna Bellows (right), a Democrat looking to capture it, both marched in this
year’s parade, shaking hands and waving
to potential voters. The spectators, many
holding red “Susan Collins” balloons or
sporting “Collins” stickers, cheered heartily for the senator, who has been in office
since 1997 and is extremely popular.
Ms Bellows’s reception was more muted. Most Mainers do not know who she is.
She hopes to change this by walking 350
miles (563km) across the state, from the Canadian border to the New Hampshire border. “The Walk” has a history. Bill Cohen, a
Republican running for Congress in 1972,
walked 600 miles (966km) despite painful
blisters in his old work-boots. Having
United States 27
trailed in the polls, he went on to win. At
least three other victorious politicians, including Olympia Snowe, who until last
year was the state’s other Republican senator, have walked the walk. “Shenna isn’t
just pulling something out of thin air,” observes Christian Potholm, author of “This
Splendid Game”, a book about Maine’s
campaign history.
Walking works better in Maine than it
would in say, California, because there are
only 1.3m Mainers and they like to meet
their politicians face to face. Ms Bellows
wears New Balance trainers made in
Maine, and stops frequently to chat with
people as they barbecue pork chops and
mow their lawns.
She is young and comes from a modest
background, having grown up in a home
without electricity or indoor plumbing.
Her campaign mixes liberal and libertarian themes. Though a Democrat, she used
to belong to the National Rifle Association,
a group that lobbies for looser gun laws
and has many supporters in a state keen on
hunting. She is also the former head of
Maine’s chapter of the American Civil Liberties Union, a group that favours nearly
every civil liberty except the right to bear
arms. Like libertarians, Ms Bellows disapproves of the National Security Agency’s
wiretapping. Like her party’s left wing, she
opposes free trade and favours stiffer regulation for banks and a higher minimum
wage (which Ms Collins opposed).
For Maine voters, “what’s not to like?”
asks Jennifer Duffy of the Cook Political Report, a non-partisan newsletter. But she
trails Ms Collins by 50 points in polls. “She
picked the wrong race and the wrong opponent,” says Ms Duffy.
That opponent, Ms Collins, has the advantage not only of incumbency but also
of moderation in a state that values it.
Many non-Republicans support her. The
League of Conservation Voters, a green
Icon v hiker
group, and the Human Rights Campaign, a
gay-rights group, have both endorsed her.
She has pushed for a cap-and-trade bill to
curb climate change; and she came out in
support of gay marriage last month, making her only the fourth sitting Republican
senator to do so. As a swing vote she is
powerful. For example, she was one of the
very few Republicans to back Barack
Obama’s stimulus bill in 2009, and used
that influence to reduce its price tag.
Ms Collins and Ms Bellows both say
jobs are the most important issue for Mainers. The state’s unemployment rate, at 5.5%,
is slightly below the national average, but
both candidates say that number is deceptive. Secure positions with benefits, like
jobs at mills and factories, are rare. Many
Mainers do seasonal work, or hold down
more than one job to make ends meet.
Hear Bellows roar
Neither candidate can rely on party allegiance. Some 32% of registered voters in
Maine are Democrats and 27% are Republicans but the largest group, at 38%, are independents. Many Mainers split the ticket
and vote for candidates they like from both
parties. The state has a Republican governor, a Democrat-dominated state legislature, one Republican senator and one independent: Angus King, who also served two
terms as governor. “Third party candidates
are taken seriously in Maine,” observes
Mark Brewer of the University of Maine.
This year’s gubernatorial race sees Paul
LePage, the Tea Party supported incumbent, running against Michael Michaud, a
Democratic congressman who recently revealed that he is gay, and Eliot Cutler, an independent who nearly defeated Mr LePage
in 2010. One still sees bumper stickers noting that most Mainers did not vote for their
governor. Mr LePage is obviously mindful
of that. He too marched in the Potato Blossom Festival parade. 7
28 United States
Lexington Dreamy footsoldiers of the Left
Some Democrats haven’t noticed that the next election is this year, not 2016
E
LECTION fever grips the American Left. A mood of scrappy,
let-us-at-’em impatience unites such gatherings as Netroots
Nation, an annual shindig which this year drew thousands of activists, organisers, bloggers and candidates to Detroit from July
17th-19th. Unfortunately for the broader Democratic Party, the
election that inspires the grassroots is the 2016 presidential race.
The mid-term congressional elections, which will happen much
sooner (in November this year), provoke a more muted response,
even though there is a good chance that Republicans will seize
the Senate and cripple the rest of Barack Obama’s presidency.
The kind of people who attend Netroots Nation are passionately and uncompromisingly left wing. Their champion is Senator Elizabeth Warren of Massachusetts, a former professor who
crusades against “big banks”, “powerful corporations” and their
enablers on the Right. “The game is rigged,” thundered Ms Warren, whose demands include more generous Social Security
benefits (pensions) for the old (paid for with steep tax hikes),
cheaper student loans, a higher minimum wage and other forms
ofredistribution. Not for her the business-friendly centrism ofthe
Clinton clan. Hillary Clinton did not attend Netroots Nation, instead giving a TV interview in which she suggested that a bit of
economic growth might make it easier to curb inequality.
Sweet dreams are made of this
Ms Warren’s warm-up act was Gary Peters, a local congressman
who, unlike Ms Warren, is running for election this year. Mr Peters, a moderate ex-banker, is trying to win a Senate seat that
Democrats desperately need to win but might not. He could use
some grassroots support, but the crowd barely noticed him. They
were too happy chanting “Run Liz, Run!” or waving “Elizabeth
Warren for President” boater-style hats (“they’re fun, they’re oldtimey,” said a hipster handing them out). Ms Warren says she is
not running for the White House. No matter. Some 100 days from
an election that could condemn Mr Obama to near-impotence,
some progressives prefer to daydream about President Warren,
“who won’t stand for all the Wall Street bullshit”, to quote a new
(endearingly terrible) folk song by her supporters.
The Democrats’ footsoldiers can ill afford to daydream in 2014.
Even as digital technology transforms elections, recent research
shows that flesh-and-blood volunteers tend to trump paid advertising. Candidates need supporters to sway their friends and
neighbours. This “ground war” is most crucial, for both sides, in
the half-dozen swing states where Senate races could go either
way. The trouble is, these states are quite conservative. So the
Democrats running for office there often have views on guns, coal
or fracking that appal progressives, who are therefore reluctant to
knock on doors for them.
Like the Republicans with their Tea Party zealots, the Left must
choose between purity and pragmatism. MoveOn, a lefty campaign behemoth which claims 8m members, has endorsed only
nine Senate candidates so far in this election cycle, conspicuously
excluding centrists in tight races in Georgia, Kentucky and Louisiana. The group will “sit out” some races; its members have drawn
a “bright line” against endorsing senators who voted against increased background checks for gun-owners, for instance. In 2014
that rules out Mark Begich in Alaska and Mark Pryor in Arkansas.
Another group, the Progressive Change Campaign Committee (PCCC), whose members raised over $2.7m for 2012 candidates, calls itself “the Elizabeth Warren wing of the Democratic
Party”. Its leaders can sound Tea Party-ish, declaring that “ideology” matters as much as finding candidates who can win. The
PCCC has invested in such hopeless causes as the Senate race in
South Dakota to demonstrate the power of “anti-corporate” messages delivered by the Democratic candidate there. Several leftish
groups think the mid-terms are a chance to show that economic
populism is the best way to woo unhappy voters, nationwide.
Yet Tea Party parallels are imperfect. Flinty conservatives often scoff that moderate Republicans are no better than Democrats. Progressives are different: many think that Republicans are
wicked. That pushes their leaders, at least, towards pragmatism.
“We may have to compromise on some things [to beat the Republicans],” says a boss at Democracy For America (DFA), a group
founded by Howard Dean, a former Vermont governor and presidential hopeful who claimed to represent “the Democratic wing
of the Democratic Party”. Take Alaska’s embattled senator. To
DFA, Mr Begich has been “terrible” on oil and gas and “not good”
on guns. But he is “fantastic” on inequality. In Louisiana local DFA
members are holding their noses and helping a pro-oil Democrat,
Senator Mary Landrieu. Ultimately, DFA vows to be “all over” any
race that might decide the fate of the Senate. Should Democrats
lose in 2014, blame candidates “who didn’t run on expanding Social Security or [raising] the minimum wage,” insists Charles
Chamberlain, DFA’s executive director.
Both DFA and the PCCC plan to use digital wizardry to help
members place campaign calls to districts across the country: a
nifty trick in places where members despise their own party’s local candidates. MoveOn tells activists that saving the Senate is the
“most important priority” of 2014, reminding them that Mr
Obama’s ability to nominate judges is in the balance. Over on the
centre-ground, Ready for Hillary, a group working to rally a volunteer army for Mrs Clinton’s use (should she choose to run in
2016), will “amplify” any 2014 endorsements made by their heroine, instantly urging supporters to lend a hand to that campaign.
On current showing, many will ignore such calls to arms in
2014. Despair with Mr Obama and this Congress may be part of
the explanation. Progressive footsoldiers are waiting for the scrap
that really interests them: a fight to drag the Democratic Party leftwards to victory in 2016. Republicans, who have plenty of problems of their own, cannot believe their luck. 7
The Americas
30 Bello: Latin American teachers
32 A cure for coffee rust?
32 Brazil’s slowing economy
For daily analysis and debate on the Americas, visit
Economist.com/americas
Argentina’s debt saga
Unsettling times
Buenos Aires
The clock is ticking toward an Argentine default
I
TS steakhouses bustle, its shopping malls
teem. There are few signs that, on July
30th, Argentina could default for the eighth
time. Yet the chances are rising.
The countdown started on June 16th,
when the Supreme Court of the United
States announced that it would not get involved in Argentina’s battle with NML
Capital, a hedge fund that picked up cheap
debt after Argentina’s 2001 default and has
since litigated for payment of full principal
plus interest. The decision left intact a ruling by Thomas Griesa, a New York districtcourt judge, which banned Argentina from
paying the creditors who in 2005 and 2010
swapped 93% of defaulted debt for performing securities, if the country did not
also pay NML what it wants.
Argentina was left with only thorny
choices: pay NML the $1.3 billion plus interest awarded by Judge Griesa; negotiate a
settlement with the hedge fund; or stop
paying the exchange bondholders. A payment due on June 30th to those exchange
bondholders was missed. The grace period
expires on July 30th, at which point Argentina will again be in default.
Full payment would be hard to swallow. President Cristina Fernández de Kirchner has always opposed stumping up, and
a generous payment for NML would open
the door to similar payouts to other “holdout” creditors. The consensus has been
that Argentina would reach a negotiated
settlement with the holdouts. Argentina
Someone expects a deal
Argentina’s defaulted debt, % of face value
SUPREME COURT DECISION
120
$
100
€
80
60
40
20
0
Feb
Mar
Apr
May
Jun
Jul
2014
Source: Russ Dallen, Caracas Capital Markets
had made good progress this year in its
quest to regain access to capital markets—
settling disputes with the Paris Club of government creditors, for example. Tackling
the holdout issue was the logical next step.
The price of dollar-denominated defaulted
debt surged above face value after the Supreme Court’s ruling, opening up a gap
with euro-denominated debt that is not
subject to New York law (see chart).
Yet the weeks have since been frittered
away. Argentina’s principal tactic has been
to try to win a stay from Judge Griesa. It
claims it cannot arrange a settlement with
the holdouts without potentially triggering the Rights Upon Future Offers (RUFO)
clause written into its restructured bonds.
This clause, which expires on December
31st, specifies that Argentina cannot voluntarily offer holdouts a better deal than it did
during its 2005 and 2010 restructurings
without extending the offer to all bondholders. Argentina has argued that violating this clause would risk a flood of bondholder claims and could leave officials
vulnerable to criminal prosecution for increasing its debt. A stay until the expiry of
the RUFO clause is the answer, it says.
NML insists Argentina is overegging the
RUFO worry: given that the country has
appealed its case all the way up to the Supreme Court and been rebuffed, a judge is
unlikely to deem any deal “voluntary”.
More importantly, Judge Griesa is having
none of it. In a July 22nd hearing, he rejected the request for a stay and ordered the
holdouts and Argentina to negotiate “continuously” with a court-appointed mediator in order to reach a deal. “The reference
to the restrictions of the RUFO clause does
not help because that clause was self-imposed by Argentina and therefore hard to
use as an argument,” says Eugenio Bruno, a
debt-restructuring lawyer.
A settlement would be in the interest of
exchange bondholders, who would keep
getting paid. It would also clearly suit the
holdouts. Default would deprive NML of
both a payout and its status as a disadvantaged creditor: unless Argentina is paying
other bondholders and not paying NML, its
claim for equal treatment is void. The
fund’s representatives have stated they are
willing to bend on timing as well as payment structure, offering to accept a mix of
bonds and cash to lower the hit to Argentina’s foreign reserves. Workarounds for the
RUFO problem may also be possible. Argentina could ask its exchange bondholders to waive the clause, though time is now
short to secure the majority consent that is
required. Some think Argentina could give
NML promissory notes which it could ex- 1
30 The Americas
2 change for performing securities in 2015,
after the RUFO term expires. Failing that,
the country could just pay NML the full
amount, as ordered, which would be more
likely to be deemed involuntary.
The unknown is how desperate Argentina is to avoid default. The country has
survived 13 years without access to dollarbond markets. It may calculate that its efforts to keep paying the exchange bondholders, allied to general suspicion of the
holdouts, will stand it in good stead with
mainstream creditors. Ms Fernández has
worked hard to convince Argentines that
Judge Griesa and the “vulture” funds
would be to blame if the country defaults.
The costs for the outside world would
be containable. Few investors would be
shocked if Argentina defaults. Its outstanding debt under foreign law—what analysts
call the “defaultable universe”—amounts
to only $29 billion, far less than the $81 billion it reneged on in 2001.
On the other hand default would have
real costs for Argentina. Its isolation from
dollar-bond markets would continue. Its
foreign-exchange reserves have dwindled
over time. Borrowers such as YPF, the state
oil firm that has placed bonds in global
markets, would face higher interest rates—
risking delays to the development of Vaca
Muerta, a huge shale formation. Rising local demand for dollars is already putting
pressure on the peso in the unofficial market. All of which would make it even harder for the country to crawl out of recession.
Default would also mean another foray
into the legal labyrinth, by triggering “acceleration clauses” that give bondholders
the right to demand immediate repayment. These clauses exist in all of the country’s foreign-law bonds, not just the ones
governed by New York law, opening Argentina up to court battles in other jurisdictions, too. Easy answers there are none. 7
Bello Eyes on the classroom
To close the education gap, Latin America must produce better teachers
T
HE Liceo Bicentenario San Pedro is a
modern secondary school in Puente
Alto, a gritty district of Santiago in Chile.
Opened in 2012, the school nestles amid
the vestiges of a shantytown where urban sprawl meets the vineyards of the
Maipo valley. Most of its pupils are drawn
from families classed as “vulnerable”. Yet
in national tests it ranks fourth among
municipal (ie, public) schools in Chile.
The school has done well by hiring
committed young teachers and by offering them more time for preparation and
in-service training, according to Germán
Codina, the mayor of Puente Alto. When
Bello strolled around the liceo recently, he
saw teachers who visibly commanded
the attention of their pupils. Sadly, it is far
more common in Latin American schools
to see inattentive children talk among
themselves while a teacher writes on the
blackboard. It is schooling by rote, not reasoning. And it imposes an unacceptable
handicap on Latin Americans.
The region has made big strides in educational enrolment. In 1960 the average
adult in Latin America and the Caribbean
had just 4.3 years ofschooling; in 2010 that
figure was 10.2, only a couple of years less
than in developed countries. The problem is that Latin Americans don’t learn
enough. The international test known as
PISA shows that at 15 they are more than
two years behind their peers in developed countries in maths and reading
comprehension. It is the quality of learning, rather than mere attendance, that
drives economic growth.
The main reason for Latin America’s
educational failure is simple. The region
churns out large numbers of teachers recruited from less-bright school leavers. It
trains them badly and pays them peanuts
(between 10% and 50% less than other
professionals). So they teach badly.
Don’t leave them kids alone
Average teacher time spent on:
% of total class time*, 2009-13
teaching
0
Recommended
benchmark
classroom
management
20
40
“off task
activities”
60
80
100
Colombia
Brazil
Honduras
Peru
Jamaica
Mexico†
Source: World Bank
*Primary and secondary schools
†Federal district
That last point is made in a groundbreaking new study by the World Bank*. In
the largest-ever international exercise of its
kind, the bank’s researchers made unannounced visits to 15,000 classrooms in
more than 3,000 public schools (both
primary and secondary) in several Latin
American countries between 2009 and
2013. They found that the region’s teachers
spent less than 65% of their time in class actually teaching, compared with a benchmark of good practice in schools in the United States of 85% (see chart). The rest of the
time was spent on administration or simply wasted. That is the equivalent of more
than one day’s schooling lost per week.
The observers also found that despite
abundant teaching materials and equipment (including laptops), teachers relied
overwhelmingly on the blackboard.
Closing the gap in learning demands
far-reaching changes in the way teachers
are recruited, trained and rewarded. Re-
forming an entire profession is complex,
especially since teachers’ unions tend to
be powerful in Latin America. But some
countries have made a start. A sine qua
non is national testing of students and the
publication of schools’ results.
The next step is to introduce in-service
evaluation of teachers, and to link pay
and promotion to performance instead of
seniority. Half a dozen places, including
Chile, Ecuador, Mexico, Peru and Rio de
Janeiro, have passed or proposed laws to
do this. But none has yet had the courage
to implement a rigorous evaluation system under which teachers who fail are
ejected from the profession.
In many countries, falling school
rolls—a result of demographic change—
provide a matchless opportunity to pay
more to good teachers by weeding out the
weakest ones. Reforming their career
structure can also be the best way to attract brighter recruits to the profession, according to Barbara Bruns, the report’s lead
author. She adds that school principals
should be encouraging teachers to learn
from their colleagues: the bank found big
variations in teacher performance within
schools as well as among them.
Not all is gloom. Chile, Peru and Brazil
have all seen improvements in their PISA
scores over the past decade. Nowadays
education is at the top of the political
agenda in the region. That is especially
true in Chile. Influenced by a powerful
student movement, its government is proposing an expensive reform to ban public
subsidy of for-profit schools, parent co-financing and selection. It might get a bigger return by using the money to invest in
world-class teachers.
..............................................................
* “Great Teachers: How to Raise Student Learning in
Latin America and the Caribbean” by Barbara Bruns
and Javier Luque
The Barbarian Empires
of the Steppes
70%
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D
ER
BY AU G
4
off
ST
OR
TULANE UNIVERSITY
R
FE
LIM
Taught by Professor Kenneth W. Harl
TIME O
ED
F
IT
U
Meet History’s Most
Fearsome Leaders
Attila the Hun and Genghis Khan loom large in the popular
consciousness as two of history’s most fearsome warrior-leaders. Yet few
people are aware of their place in a succession of nomadic warriors who
emerged from the Eurasian steppes to seize control of civilizations.
In the 36 gripping lectures of The Barbarian Empires of the Steppes,
award-winning Professor Kenneth W. Harl of Tulane University guides
you through some 6,000 miles and 6,000 years to investigate how these
nomadic peoples exerted pressure on sedentary populations, causing a
domino effect of displacement and cultural exchange.
LECTURE TITLES
Steppes and Peoples
The Rise of the Steppe Nomads
Early Nomads and China
The Han Emperors and Xiongnu at War
Scythians, Greeks, and Persians
The Parthians
Kushans, Sacae, and the Silk Road
Rome and the Sarmatians
Trade across the Tarim Basin
Buddhism, Manichaeism, and Christianity
Rome and the Huns
Attila the Hun—Scourge of God
Sassanid Shahs and the Hephthalites
The Turks—Transformation of the Steppes
Turkmen Khagans and Tang Emperors
Avars, Bulgars, and Constantinople
Khazar Khagans
Pechenegs, Magyars, and Cumans
Islam and the Caliphate
The Clash between Turks and the Caliphate
Muslim Merchants and Mystics in Central Asia
The Rise of the Seljuk Turks
Turks in Anatolia and India
The Sultans of Rūm
The Sultans of Delhi
Manchurian Warlords and Song Emperors
The Mongols
Conquests of Genghis Khan
Western Mongol Expansion
Mongol Invasion of the Islamic World
Conquest of Song China
Pax Mongolica and Cultural Exchange
Conversion and Assimilation
Tamerlane, Prince of Destruction
Bābur and Mughal India
Legacy of the Steppes
The Barbarian Empires of the Steppes
Course no. 3830 | 36 lectures (30 minutes/lecture)
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32 The Americas
Brazil’s economy
All systems slow
São Paulo
Confidence and growth down, public spending up
D
Coffee rust
Roya flushed
CHINCHINÁ
How Colombia fought the fungus
W
HEN Jesús María Aguirre saw his coffee bushes wither away, he knew
that he had lost the sole source of income
for his family. “We would go to collect coffee and would come back with our baskets
nearly empty,” says the Colombian
grower, recalling the pernicious effects of
the “coffee rust” fungus, or roya.
The fungus stunts the growth of the
fruit of arabica coffee plants. It infected
about 40% of Colombia’s crop between
2008 and 2012. Production plunged from a
high of 12.6m 60kg bags a year in 2007 to
just 7.7m bags in 2012. As supply from Colombia shrank, international buyers
turned to growers elsewhere.
What Mr Aguirre went through then is
now the lot of farmers throughout Central
America, the Dominican Republic, southern Mexico and Jamaica. Production there
fell by 30% between 2011 and 2013 because
of roya, reckons the International Coffee
Organisation. USAID thinks it has caused
$1 billion of economic damage in Latin
America since 2012. This time Colombians
are the ones taking advantage.
On his farm on the slopes of the country’s central mountain range, Mr Aguirre
today presides over 1.5 hectares (4 acres) of
healthy bushes plump with red berries.
For yields to recover, he had to yank up
fungus-prone bushes and plant a new variety that promised to fight off the blight. He
was one of thousands of farmers who
URING the month-long football
World Cup, which concluded in
Brazil on July 13th, rua 25 de Março, a tatty
but popular shopping street in São Paulo,
was a riot of yellow and green. It was
hard to buy anything that did not come in
the Brazilian national colours. Now the
flags and football jerseys are gone; the
cheap bags and Calvin Klein knock-offs
are back. Katia Maurício, who runs a stall
full of T-shirts and headbands, is selling
off the last of her World Cup-themed
stock at a big discount. Business was
good, she says. “But it will go downhill
after the election.”
It is already heading that way. Business confidence has sunk to levels not
seen since the depths of the global recession in 2009. Inflation among items
whose prices are set by the market, not
the government, stands at over 7%. Economists are busy slashing growth forecasts
for 2014 to 1% or below. Analysts at Morgan Stanley see echoes of another 7-1, the
scoreline when Brazil was drubbed by
Germany in the World Cup semi-final.
The more sensitive souls at Goldman
Sachs warn of “stagflation”.
In June manufacturing payrolls contracted for the third straight month, the
first time this has happened in half a
decade; capacity utilisation, a measure of
how much of the country’s industry is
busy, has tumbled (see chart). After three
years of anaemic growth “industry has
finally thrown in the towel”, says Arthur
Carvalho of Morgan Stanley.
The unemployment rate is low. But
with job prospects dimming, consumers,
who have pulled the economy along in
the past few years, are growing more
downbeat. Last month 11.4% were more
than 30 days behind on their debt payments, up from 9% a year earlier. Retail
sales have flagged.
Sagging confidence poses the biggest
threat to President Dilma Rousseff’s
chances of a second term in an election
this October. In an effort to prevent voters
from feeling the pinch, Ms Rousseff has
loosened the fiscal reins. In May public
spending was 16% higher than a year
earlier and revenues 8% lower. As a result
Brazil posted its second-worst monthly
primary budget deficit (ie, before interest
payments) ever. “They are trying to mask
the problem until after the election,” says
Ms Maurício.
If so, it isn’t working. The president’s
poll lead has been shrinking steadily. A
survey released by Datafolha, a research
firm, on July 17th showed only a fourpercentage-point advantage for Ms Rousseff in the event of a second-round runoff with Aécio Neves, her principal challenger. In February, her lead over Mr
Neves in a second round was 27 points.
joined in a countrywide scheme run by
the Colombian Coffee Growers Federation, which represents more than 500,000
independent growers. By June 2014 more
than 3 billion bushes had been replanted.
Three-quarters of them were replaced
with a roya-resistant variety known as
Castillo, which had been developed in the
labs of Cenicafé, the coffee federation’s research arm, after13 years ofselective breeding. Lindsey Bolger, head coffee buyer for
Keurig Green Mountain, a roaster in the
United States, said the industry was “on
pins and needles” about whether the Castillo would work. It has. Colombia produced 11.5m bags in the 12 months to June
2014, up by 31% on the previous 12-month
period, according to the coffee federation.
Buyers are coming back.
Fernando Gast, Cenicafé’s director, says
seeds of the Castillo coffee plants have
been sent to Mexico, El Salvador and Costa
Rica for evaluation. But he warns that Colombia’s success story is not directly transferable to Central America. The Castillo
variety was created for Colombia’s needs
and may not adapt to Central America’s
soil and climate, he says.
Cenicafé’s 89 researchers cannot rest
easy, either. They are working on a project
to map the coffee genome. That should
help them develop new varieties that will
not only resist roya, which is continuously
evolving, but will also be less susceptible
to erratic weather. The search for a stronger
brew is never over. 7
Plant wilting
Brazil’s:
used industrial capacity
industrial production*
% of total
70
76
60
73
50
70
40
67
30
2011
Source: National
Confederation
of Industry
12
13
14
*A reading above/below 50 indicates
production is expanding/contracting
compared with the previous month
Asia
34 Child-sex tourism in South-East Asia
34 Energy in Central Asia (1)
35 Energy in Central Asia (2)
36 Australia and asylum-seekers
Banyan is on holiday
For daily analysis and debate on Asia, visit
Economist.com/asia
Economist.com/blogs/banyan
Indonesia’s presidential election
Jokowi’s day
JAKARTA
Though his opponent attempts to spoil it
T
HE wait is over. After taking two weeks
to count 135m ballots from roughly
480,000 polling stations across the vast archipelago, the Election Commission confirmed Joko Widodo as Indonesia’s president-elect on July 22nd. The commission
said that Mr Joko, the governor of Jakarta,
the capital, and his vice-presidential running mate, Jusuf Kalla, had won 71m votes
on July 9th, 53.15% of the total. The losers,
Prabowo Subianto and Hatta Rajasa, got
46.85% of the total, or 62.6m votes. Mr Joko
won in 23 of the country’s 33 provinces. His
winning margin of 6.3 percentage points
was wider than quick calculations had predicted on election night.
Mr Joko, known to all as Jokowi, is due
to start his five-year term as leader of the
world’s third-largest democracy on October 20th. He will be like no leader Indonesia has had before, hailing from neither the
armed forces nor from an established family, such as that of his early patron, Megawati Sukarnoputri, the daughter of Sukarno, modern Indonesia’s founding father,
and a president herself in 2001-04. Instead
Jokowi rose up through local government,
a product of the far-reaching political decentralisation introduced after the overthrow of Suharto, Indonesia’s late dictator,
in 1999. A former furniture exporter, Jokowi was elected mayor of Solo, a medi-
um-sized city in central Java, before becoming governor of Jakarta in 2012. He has
a reputation for being a man of the people.
Jokowi has a difficult road ahead of
him. Indonesia’s economy, the largest in
South-East Asia, is faltering. Annual
growth slipped to 5.2% in the first quarter,
the slowest for more than four years. Energy subsidies cost the government some
$30 billion a year and contribute to a destabilising current-account deficit—and bear
in mind that in a few years’ time a country
once rich in oil and gas will become a net
energy importer. The hunt for more natural resources is ravaging the archipelago’s
seas and remaining forests. And a sprawling, corrupt bureaucracy is in urgent need
of improvement.
But Jokowi’s immediate challenge is to
mend the rifts from a highly divisive election. The new president has made a start.
In a midnight victory speech on board a
wooden pinisi cargo vessel in the capital’s
old port, he struck a conciliatory note. He
called for a “united Indonesia” and appealed to voters to put behind them the
rancours of the campaign.
That may take a while. Mr Prabowo, a
former special-forces general with a questionable human-rights record, refuses to
concede. Just hours before the election
commission announced its final count, Mr
Prabowo appeared defiant on the steps of
a mansion in eastern Jakarta and said he
was “withdrawing” in protest against
“massive cheating”. Soon after, his witnesses walked out of the commission
count. Mr Prabowo has since alleged voting irregularities at 52,000 polling stations,
covering 21m votes. He has appealed to the
Constitutional Court, which has until August 21st to announce its verdict.
The court has never ruled against an
election before. Though Indonesia’s judiciary is notoriously easy to buy, it is hard to
see how a challenge could succeed this
time. To overturn Jokowi’s victory, the
court would have to show evidence that
many millions of votes had been tampered with. Some problems in the counting have come to light, but Mr Prabowo has
yet to produce evidence of fraud on the
huge scale that he alleges took place.
Test case
Still, a case would be a test for Indonesia’s
young democracy and for the Constitutional Court especially. Set up after the fall
of Suharto, its reputation suffered a grievous blow earlier this month when a former
chief justice, Akil Mochtar, received a life
sentence for rigging rulings on disputed local elections. Mr Mochtar’s successor,
Hamdan Zoelva, is a former member of
one of the six parties that backed Mr
Prabowo’s bid for the presidency. All this
controversy has led to some unease
among Jokowi supporters.
But the political mood seems to be turning Jokowi’s way. After parliamentary elections in April, Mr Prabowo assembled a
coalition controlling just over half of the
560 seats in the incoming House of Representatives. Earlier this month it revised a 1
34 Asia
2 law to prevent Jokowi’s party, the Indone-
sian Democratic Party of Struggle, or PDI-P,
from automatically taking the post of
speaker. But now Mr Prabowo’s coalition
allies seem to be abandoning their man. Indeed, as Mr Prabowo railed against election cheating, his running-mate, Mr Hatta,
was conspicuously absent. Aburizal Bakrie, the chairman of Golkar, the secondbiggest party in the incoming legislature,
was there to hear Mr Prabowo’s invective.
But speculation is mounting that Golkar
members might soon depose him and
transfer allegiance to Jokowi and Mr Kalla,
a former Golkar chairman.
So far Indonesia’s reputation for peaceful transitions of power remains intact.
Some 3,000 riot police were on high alert
in Jakarta amid rising tensions between
the two camps, but there has been no violence. The outgoing president, Susilo Bambang Yudhoyono, has appealed for calm.
In a bid to defuse the mood, on July 20th he
invited both candidates to the presidential
palace to break the Ramadan fast together.
The following day Mr Yudhoyono said that
it was a “noble” thing to admit defeat. But
for now, Mr Prabowo is still struggling to
find his inner nobleman. 7
Child-sex tourism in South-East Asia
Virtual depravity
SINGAPORE
Paedophilia moves to video chat-rooms
T
Mi CASA no es tu
CASA
BISHKEK AND DUSHANBE
A plan to export electricity looks cursed
W
AR in Afghanistan, corruption and
regional rivalries: until recently these
were the main hurdles to a $1.2 billion,
American-backed project to send surplus
electricity from Central Asia to energyhungry Afghanistan and Pakistan. Now
comes another: there is unlikely to be any
surplus electricity.
The concept, first aired eight years ago,
was simple. In summer, when Afghanistan1
Syr
Da
Bishkek
ry
KYRGYZSTAN
Na r y n
n
Sha
Tian
Tashkent
KI
ST
N
A
Fer
TURKMENISTAN
Dushanbe
Am
200 km
KAZAKHSTAN
a
BE
u Dar
gan
Rogun
lle
a Va
s
Vakh
y
h
ya
AFGHANISTAN
CASA-1000
project
Kabul
Osh
CHINA
TAJIKISTAN
PAKISTAN
ber showing how easy it is to gather
information about paedophiles by using
a false profile of a ten-year-old girl from
the Philippines. The result was over
20,000 advances from 71 countries over a
period of ten weeks. Many predators
gave away their locations and identities
because they believed no one was watching. TDH identified 1,000 of them and
handed over their dossiers to Interpol.
Since then, several national police
forces have been busy hunting down
these new chat-room predators. To date
hundreds of Britons and Australians have
come under investigation. Some governments, including those in America and
Canada, have laws that allow for prosecution of child-sex crimes committed
abroad as if they happened at home. But
although a TDH survey of legislation in
the 21 countries from which most offenders come showed a solid legal basis for
prosecution, such action is still rare in
most countries. TDH blames a lack of
political will.
Exploitation is particularly bad in the
Philippines. The country is poor but
two-fifths of its 100m people have internet access. The combination gives
fixers and families both the means and
the incentive to put children on the web.
The Philippine justice system allows for
entrapment, however, which many
jurisdictions do not. Darlene Pajarito, a
prosecutor with the department of justice, says this helps bring prosecutions
when victims are unable to testify in
court.
UZ
HE usual story of child-sex-tourism
goes something like this. A predator
from a rich country arranges a meeting
with a fixer and travels to a poor country.
The fixer could be a pimp, or even a
family relation of the child. If so, the
predator might shower the child’s family
with gifts and money in exchange for
being alone with his victim. Eventually,
the offender flies home and returns to his
normal life as if nothing had happened.
The rapid spread of fast and cheap
internet connections in the poor world,
and particularly in South-East Asia, is
adding a new twist to the old nasty story.
It is called “virtual trafficking”, where
predators now meet children in videochat rooms. The UN and America’s FBI
claim that some 750,000 potential predators are online at any given moment. The
FBI estimates there are at least 40,000
such chat-rooms. These allow paedophiles to skip the travel while bringing
victims into their bedrooms halfway
across the world. The paedophiles do not
physically molest their victims, of course.
But they may pay others, including children’s families, to do so.
A series of joint police operations
early this year exposed “cottage industries” and web-streaming sex dens which
hold children for sexual purposes (alleged traffickers are pictured, above).
Many were run by poor families looking
to make money out of their children.
Terre des Hommes (TDH), a Netherlandsbased organisation working against child
exploitation, released a report in Novem-
2 and Pakistan most need electricity, melt-
ing snow fills hydropower reservoirs beyond capacity in Tajikistan and Kyrgyzstan. The idea was to harness the spillover,
generating electricity to send south along
a transmission line to needier places (see
map on next page). In winter, as rivers
freeze and both former Soviet republics
themselves face dire electricity shortages,
all the electricity generated would be kept
at home.
But in the years since Western governments mooted the 1,200-kilometre (750mile) power line, known as CASA-1000,
electricity shortages in Tajikistan and Kyrgyzstan have worsened. This summer, to
conserve water in readiness for the winter,
Kyrgyzstan is actually importing electricity
from Tajikistan.
Local shortages are largely caused by inefficiencies in Soviet-era infrastructure and
a failure to reform state-run energy monopolies. Backers of the transmission line
claim it would bring revenues to deal with
those failings; Pakistan is expected to pay
more than three times as much for electricity as rates prevailing in Central Asia.
Funds exist to get construction under way.
The World Bank has pledged $530m in
grants and loans, and America’s State Department has offered another $15m. In theory, building can start as soon as the four
countries involved sign power-purchase
agreements.
Other obstacles exist, however. One is
political. America had hoped that the
CASA line would add zip to its lacklustre
“New Silk Road” strategy, a plan that Hillary Clinton backed when she was secretary
of state. The idea was to lessen Russia’s influence over its former vassals while helping Afghanistan to trade more and improve its infrastructure. But the influence
of America in Moscow’s backyard is fading as it winds down its military efforts in
Afghanistan. In June the Americans quit
their airbase outside Kyrgyzstan’s capital,
Bishkek. In its place, China is gobbling up
energy contracts, and Russia is making efforts to drag some Central Asian countries
into a new political-economic union.
The electricity project is proving divisive even among those who are meant to
gain from it. Tajikistan and Kyrgyzstan are
both keen to build giant dams, and the idea
of generating electricity to send south gives
the plans internal legitimisation. But that
infuriates downstream Uzbekistan, which
fears losing water supplies. Its president, Islam Karimov, has even said that the dams
could provoke a war.
Tajik officials speak as if the new power
line and their dream dam, Rogun, which
would be the world’s tallest, are inseparable. “With Rogun we can ensure energy not
only for ourselves, but also for Afghanistan
and Pakistan. Just as Arabs sell oil, we will
sell electricity,” says Davlatbek Salolov,
deputy director of Tajikistan’s largest hy-
Asia 35
dropower plant. Yet that would depend on
Tajikistan’s unsavoury regime resisting the
temptation to divert the energy it produces
to pet projects, such as a subsidised stateowned aluminium smelter, whose profits
are hard to trace.
In Kyrgyzstan, which is heavily indebted, support for the power line is lukewarm.
Officials sound as if they are being coerced
into the project, pointing to local energy
shortages and to Kyrgyzstan’s $200m share
of the costs. Outside the government, there
is outright hostility. Nurzat Abdyrasulova
of UNISON, an energy watchdog in Bishkek, says that the project is not going to
make money and will generate friction
with Tajikistan, whose territory Kyrgyzstan’s trade must cross. The two countries
already disagree so strongly about half
their mutual border that soldiers have
twice exchanged sustained fire this year.
That is hardly the best environment for putting up pylons. 7
Wanderer above a see of fog
Power failure
BISHKEK
Not all goes smoothly for Russia in its backyard
G
AZPROM is usually seen, especially by
Europeans, as a powerful tool of
Kremlin-led statecraft. But in Central Asia,
a region that was once part of the imperial
Russian and then Soviet empires, the gas
giant has become bogged down in a dispute that makes Russia look anything but
omnipotent.
The problems began in April, when
Gazprom took over Kyrgyzstan’s gas network, pledging “a stable gas supply”. A few
days after the handover, Uzbekistan, a big
gas provider, stopped exporting to Kyrgyzstan’s south. It said curtly that it had no
contract to sell to Gazprom.
The shut-off has affected hundreds of
thousands in the Ferghana valley, a volatile
region of Kyrgyzstan. Some are hunting for
electric stoves to cook on; others are burning rubbish or even furniture to make
meals. It is unclear whether or when the
gas will be switched back on. Fears are
growing about the harsh winter, when
electricity supplies are always irregular.
A resident of the regional capital, Osh,
says city officials have begun distributing
gas cylinders, but cannot say how much
the liquid gas will cost or where to buy it.
“Nobody has answers.” More and people
are asking what on earth the Kyrgyzstani
president, Almazbek Atambayev, is doing
about the matter. He has called for “a little
patience”. A lot may be needed. Promises
to bypass Uzbekistan, by building a pipe-
line across the Tian Shan mountains from
northern Kyrgyzstan, could take years.
Many Kyrgyzstani citizens criticised the
sale of KyrgyzGaz to a gas company owned
by their former coloniser. The deal came as
Russia was promoting an economic and
political alliance, the Eurasian Economic
Union, which Kyrgyzstan is expected to
join next year despite questionable bene- 1
36 Asia
2 fits. The gas shortage gives Kyrgyzstanis
more reason to wonder whether throwing
their economic lot in with Russia is a good
idea.
Gazprom is now said to be negotiating
with Uzbekistan, whose strongman president, Islam Karimov, is no fan of Russia or
its attempt to reassert control in the region.
Uzbekistan prefers to sell its gas to China,
making opaque deals that some blame for
shortages at home.
The Kyrgyzstanis are stuck in the middle. The country’s prime minister complains that his counterpart in Tashkent, Uzbekistan’s capital, does not take his calls.
As the crisis drags on, some Kyrgyzstani
politicians have suggested diverting irrigation water away from Uzbekistan. That
would surely elicit a response—though one
as explosive as gas. 7
Australia and asylum-seekers
At sea
SYDNEY
A court challenges a hardline policy towards boat people
W
ITH his pledge to “stop the boats”,
Tony Abbott, then the leader of Australia’s opposition, made a crusade against
asylum-seekers a key part of last year’s victorious election campaign. Last month the
prime minister claimed victory: Mr Abbott
boasted that his conservative Liberal-National government had notched up six
months without one “people-smuggling
venture” landing on Australian shores. It
has done so mainly by using the navy to
push boats back to Indonesia, from where
most asylum-seekers set out.
Days after his declaration, Australia
seized 157 Sri Lankan Tamil asylum-seekers
from a boat near Christmas Island, an Australian territory in the Indian Ocean. The
government has since held them on a customs vessel at sea, though it will not say
where. The boat people’s fate has now
moved to Australia’s High Court, where
refugee advocates say the government is
acting illegally. The case could affect the
policy of turning back the boats.
When reports of the boat’s seizure first
surfaced, Scott Morrison, the immigration
minister, refused even to acknowledge the
interception. The government calls “Operation Sovereign Borders” against boats a
“military-led” affair, and has shrouded it in
secrecy. It then emerged that Australia had
intercepted another vessel, carrying 41 Sri
Lankan asylum-seekers, both Tamil and
Sinhalese. It handed these people over to a
Sri Lankan naval vessel off the coast of Sri
Lanka in early July.
That prompted lawyers, backed by the
Human Rights Law Centre in Melbourne,
to go to the High Court. On July 7th a judge
issued a temporary injunction stopping
the larger group of boat people from being
delivered to Sri Lanka, too. In preliminary
hearings since, some details have come
out. The 157 Sri Lankans had left for Christmas Island from southern India. Since
their interception, they have been allowed
out of their cabins on the Australian vessel
for meals and three hours of daylight a day.
Family members, among them three dozen children, have been split up.
According to court documents, the cabinet’s national-security committee, which
Mr Abbott chairs, ruled two days after the
Sri Lankans’ interception on June 29th that
they be taken to “a place other than Australia”. A destination has not been spelled
out. But the government has undertaken to
the court that it will not send them to Sri
Lanka without notice. Mr Morrison’s visit
to Delhi on July 22nd sparked speculation
that Australia hoped to send the asylumseekers to India instead.
The government says the Sri Lankans
were intercepted in a “contiguous zone”
just outside Australia’s territorial waters
around Christmas Island. It argues this
makes them ineligible to claim asylum in
Australia, and that the country’s Maritime
Powers Act allows it to transfer them elsewhere. The boat people’s lawyers contend
that Australia’s obligations under international and human-rights laws apply as
much as Australian law on the high seas.
They say this means Australia should give
the boat people a fair hearing and not send
them to a country such as Sri Lanka, where
some may fear for their safety.
The government has acknowledged
that the 41 people from the earlier boat
were given a rather compressed form of
screening before being handed over to Sri
Lanka. Australia has used a blunt process
of shortened questioning, often without
access to lawyers, since 2012—mainly with
boat people from Sri Lanka. Many have
been returned there as a result. The UN refugee agency has condemned the practice.
On July 7th some 53 legal scholars from 17
Australian universities declared jointly
that Australia’s “reported conduct under
Operation Sovereign Borders clearly violates international law”.
Some critics worry about other cosy aspects of Australia’s relations with Sri Lanka. Two months after its election last year,
the Abbott government gave Sri Lanka two
patrol boats to help it stop asylum-seekers
from leaving the country. Gillian Triggs,
head of Australia’s human-rights commission, speaks of a “dangerous environment” after Sri Lanka’s bitter civil war ended in 2009 with the government’s crushing
victory. But Mr Abbott sounds sanguine.
Sri Lanka, he says, “is not everyone’s idea
of the ideal society, but it is at peace”.
The High Court is due to hear the Tamils’ challenge on August 5th. Meanwhile,
about 2,300 asylum-seekers intercepted at
sea in recent years are waiting to have their
claims processed in two detention camps,
one on the tiny island-state of Nauru and
the other on Manus Island, in Papua New
Guinea. David Manne, a lawyer for refugees, says that if the court ruling went
against the government, it would force a
profound change in how Australia treats
them and other asylum-seekers at sea. 7
China
38 Recreational drugs
For daily analysis and debate on China, visit
Economist.com/china
Economist.com/blogs/analects
Improving health care
Congratulations! Inoculations!
BEIJING
The World Health Organisation gives China a glowing report for its lowering of
infant and maternal mortality rates
F
ANS of the China model frequently say
that, for all the disadvantages of a oneparty state, there are also benefits. Enforcing basic health care is one—and by no
means a small one. Last year China’s mortality rate for children under five years old
was just one-fifth the rate it was in 1991,
down from 61 deaths per 1,000 live births
to 12. The maternal mortality rate has also
dropped substantially—by 71%—since 1991.
In 1992, one in ten Chinese children under
five contracted hepatitis B. Today fewer
than one in 100 of them carry the disease.
China’s advances have not gone unnoticed. Last month a group of four international bodies, including the World Health
Organisation (WHO) and the World Bank,
said China was one of ten countries to
have made exceptional progress in reducing infant and maternal mortality (see
chart). Not all of the ten—which included
Egypt, Peru, Bangladesh and Vietnam—are
one-party states.
China’s improvement lies in two basic,
connected areas: better care at birth and
countrywide immunisation. Since 2000
the government has offered subsidies to
mothers who give birth in hospitals, thereby reducing health dangers from complications—especially the risk of neonatal tetanus.
The
scheme
also
brought
hard-to-reach people and groups into contact with the health-care system.
From 2001 to 2007, the share of births
that took place in hospitals rose by 46%,
making it easier to give a hepatitis B vaccine immediately. China now has one of
the highest usage rates of the birth dose of
the vaccine in the world: 96% of Chinese
babies receive it on their first day of life. In
2012 the WHO commended China for a
“remarkable” public-health achievement.
That year it declared China free of maternal and neonatal tetanus.
Margaret Chan, the WHO’s directorgeneral, this month said that China’s regulatory system for vaccines had passed the
WHO’s evaluation with outstanding results. Dr Chan says she has “full confidence” in the safety of vaccines made in
China. Last year the WHO approved one
for the first time for use by UNICEF. (That
has not dispelled suspicions within China
itself, however, about the safety ofChinese
vaccines.) China and the WHO claim that
about 95% of children are vaccinated for
measles, rubella and polio. In 2008 the
government added eight new vaccines, including hepatitis A and meningitis, to its
national programme. All are administered
to children free of charge. Just as important
has been the mobilisation of a network of
health-care workers, at provincial, county
and township levels.
That does not guarantee effectiveness.
In 2010 the government ran a huge vaccination campaign against measles, inoculating 103m children. Though the scheme
reportedly achieved a coverage rate of 98%,
outbreaks of measles in 2013 and again this
year showed that many children must
have missed their scheduled doses.
Part of the problem is the growing number of rural migrant children. They are tied
to their hometown through the household-registration, or hukou, system and do
not qualify for free health services, such as
routine immunisation, outside it. Another
hurdle is the complexity of administering
so many vaccines in such a large, developing country. There are still occasional cases
of poorly stored or outdated vaccines causing ill health, or even death. As a result,
says Chen Tao’an, a former official at China’s Centre for Disease Control and Prevention, trust in the immunisation system
is eroding, even though the quality of vaccines remains—mostly—high. When 17 infants died after receiving a hepatitis B vaccination last year, immunisation rates
dropped by a third across the country in a
month. The drop was even greater in urban
areas (where parents have better access to
media). Coverage rates fell for other vac- 1
Staying alive
Under-five mortality rate, per 1,000 live births
0
50
100
150
200
Ethiopia
Laos
Rwanda
Bangladesh
Nepal
Cambodia
Egypt
Peru
China
Vietnam
Sources: World Health Organisation; UN estimates
1990
2012
38 China
2 cines, too, by an estimated 15%. The batches
were recalled for tests. International organisations confirmed they were safe and
that the deaths were not related to the vaccines. But parents’ confidence was dented.
Wang Yuedan, a professor of immunology at Peking University, says that, for all its
successes, China’s approach to immunisation is still stuck in the 1960s. When the incidence of infectious disease was high, a
blanket approach made sense. But that carries with it risks for the vulnerable or weak,
who may have adverse reactions to vaccinations. Now that many diseases have
been eradicated, screening infants for suitability before they receive a vaccine is preferable, says Mr Wang. The ineffectiveness
of the measles vaccinations in 2010 is a
case in point.
Many of China’s vaccines, including
those for Japanese encephalitis and polio,
are the live attenuated sort (which limits
the virulence of a microbe but keeps it
alive). In the case of polio, these are favoured in poor countries where disease is
rampant because they are cheap and require fewer boosters. But they must be
stored properly, and carry health risks for
those with a weakened immune system.
The WHO has urged China now to shift to
an inactivated polio vaccine (in which the
microbe has been killed). In April Sinovac,
a Chinese firm, said it would produce the
country’s first such vaccine.
That China is now at a stage where it
needs a more sophisticated and targeted
immunisation programme is testimony to
its success, however. It is a sign that 1.4 billion people have taken another step up the
ladder of good health. 7
Recreational drugs
Chemical highs
SHANGHAI
Synthetic drugs are now common in Chinese cities. They are being exported, too
A
LL sorts of things can be ordered online
in China, but few goods are delivered
as fast as ketamine. It takes one hour and
500 yuan ($80), says Nine Ice Dragon
Room, a dealer on QQ, an online-messaging service, for five grams of Guangdong’s
purest “K” to reach an address in central
Shanghai. It is an exchange that reflects the
new realities of urban China.
Years of urbanisation and rising incomes have created a generation of young
office workers with the time and money to
experiment. “Meth is cheap heroin,” says
one 29-year-old video producer. “It’s very
popular among white-collar people.”
There are more than 2m registered drug
users in China (up from about 70,000 in
1989) but the head of China’s drugs control
bureau says the actual figure is more like
10m. Heroin remains the most popular narcotic, accounting for 60% of registered users, but its take-up by new users is declin-
ing. Instead, people are opting for
synthetically manufactured drugs, such as
K, ecstasy and methamphetamine
(“meth”). In 2005 nearly 7% of new registered addicts used synthetic drugs, according to China’s National Narcotics Control
Commission. By 2013 that had risen to 40%.
The spread of the internet has aided sales.
Dealers on QQ or WeChat, a popular
smartphone app, have user names that include the characters “pork” for meth, “rice”
for ketamine and “ice” for crystal meth.
Just as China has become the place to
manufacture cheaply everything from tennis shoes to iPads to Bibles, so it is with
drugs. Clandestine labs produce vast
quantities of ketamine and other synthetics which are now fuelling a worldwide
boom. Some are now calling China the
new front in the global war on drugs.
Meth is especially addictive. It is also
easily manufactured. It has become the
scourge of China’s anti-drug departments
and ofneighbouring countries. In 2012 Chinese authorities seized 102m methamphetamine pills, more than double the haul in
2009. Drug busts have assumed cinematic
proportions. Last December helicopters,
speedboats and 3,000 armed police raided
Boshe, a village in the southern province
of Guangdong. “Operation Thunder”
seized three tonnes of the drug.
Western governments have trouble
keeping up with how to regulate all the
new types of drugs. China, with its underdeveloped legal system, finds it even more
difficult. That some drugs can be used for
legitimate industrial and pharmaceutical
purposes further complicates regulation
(ketamine is an anaesthetic). As one drug is
banned, others, made from similar chemicals, are produced and sold legally. These
“legal highs” contain compounds similar
to banned narcotics such as mephedrone
(“meow meow”), and are designed to
mimic their effects.
Norman Baker, Britain’s drugs minister,
recently said that Britain was “in a race
against the chemists of new substances being produced almost on a weekly basis in
places like China and India”. The number
of new “psychoactive” substances recorded by the UN Office on Drugs and Crime
more than doubled between 2009 and
2013. The worrying part, says Owen Bowden-Jones, a consultant psychiatrist at the
Club Drug Clinic in London, is that many
new synthetics have higher potency than
the drugs they emulate, and little is known
about the damage they cause.
Hundreds of laboratories clustered
around Chinese ports fulfil the orders for
“legal highs” from dealers in America and
Europe. Global courier services ship the orders. China also produces many of the
chemicals used in banned drugs. In 2012
six shipments of methylamine were intercepted by authorities in Central and North
America, totalling more than 130,000 litres
(28,600 gallons). The substance, when
mixed with other chemicals, can produce
meth. Nearly all of it originated in China.
Whatever is decided legislatively,
young people will continue to take synthetic drugs. Banning them prompts dealers to sell their soon-to-be-illegal stock at
cut-rate prices. Then they place new orders
with Chinese chemists for novel compounds that can be sold legally in the West.
One supplier, found during a random
web search, claims she can ship 1kg of a
chemical called 4-MEC to London for
$2,100. Bitcoin is among the payment options. Often sold in Britain under the name
NRG2, 4-MEC is a chemical cousin of the
now-banned “meow meow”. “Some people say ‘It is the best thing I’ve ever tried,’
and some of them feel sick,” the website
says in broken English. “But anyway, 4MEC continuous [sic] to be in demand and
you can buy 4-MEC right now.” 7
Middle East and Africa
40 Israel’s angry Arabs and Jews
41 Iran and its knotty nuclear plans
41 The expulsion of Mosul’s Christians
42 Northern Nigeria’s education hole
43 Chad’s regional fight against jihad
For daily analysis and debate on the Middle East
and Africa, visit
Economist.com/world/middle-east-africa
The war in Gaza
No one is winning —yet
GAZA AND JERUSALEM
As the death toll soars, both sides claim success, while mediators flounder
T
WO weeks into the Israeli campaign
against Hamas in Gaza, more than 700
Palestinians have been killed, at least
4,000 injured and 150,000 displaced, according to the UN. The Israelis have lost at
least 32 soldiers and three civilians. Ban Kimoon, the UN secretary-general, who has
been trying in vain to mediate, said that
this round of war has been worse than the
Israelis’ previous biggest effort to knock
out Hamas, in 2008-09, because Palestinian civilians this time have “no way out”.
Gazan schools run by the UN’s refugee
agency, where at least 140,000 Palestinians
have sought shelter, have been hit.
The Israelis say it is inevitable that civilians will be hurt, because Hamas uses
them as human shields, by putting rocketlaunchers and other military facilities in areas and buildings crammed with civilians.
The United States and the European Union
have defended Israel’s “right to self-defence” in the face of Hamas’s rockets. But a
growing chorus of international humanrights organisations are accusing Israel of
committing war crimes.
Since Israel intensified its assault by
sending in troops on the ground on July
17th, its forces have pushed deep into the
densely populated strip, where 1.8m people are stuck within a coastal enclave 41km
(25 miles) long and 6-10km wide. The Israe-
lis say their troops, having cleared a buffer
zone on the strip’s eastern side, now control nearly half the territory. Many residential areas have been struck, particularly the
Shujaiya suburb of Gaza City. In one Israeli
attack, a family of 25 was wiped out. Bodies lay strewn across streets reduced to
rubble. Several hospitals have been hit.
Israelis, in rather different ways, also
feel isolated. Hamas’s rockets, whose
range and sophistication have increased in
recent years, have sent Israelis rushing to
shelters. One missile on July 22nd landed
within two kilometres of Tel Aviv’s Ben
Gurion airport, the gateway for 90% of Israelis who travel abroad. An array of international airlines then suspended flights to
Israel; some incoming aircraft turned
around. Business and tourism have plummeted. Funerals of dead Israelis in the largest toll in war since Israel’s campaign in
Lebanon in 2006 have cast the country
into mourning. The mood is of anger and
trepidation rather than triumph.
Israeli generals say they can yet beat
Hamas into submission. Indeed, the rate of
rocket fire has begun to fall, as Gaza’s fighters husband their remaining stockpile. The
Israelis say they have uncovered at least 23
tunnels into Israel, through which Hamas
intended to send guerrillas on missions to
capture Israelis and hold them as hostages
in exchange for Palestinian prisoners; in
this way1,000-plus of them were swapped
for Gilad Shalit, an Israeli soldier nabbed
in 2006 and held by Hamas for five years.
The tunnels are being blown up, the stockpiles methodically destroyed. Israeli generals say they need time to finish the job.
Some Israelis, however, are sceptical.
“To neutralise Hamas militarily, Israel
would have to go into and under every
house in Gaza,” says Martin van Creveld, a
leading Israeli military historian. “And
even then, it wouldn’t work.” Since previous wars in Gaza, Hamas fighters have improved in both offensive and defensive
terms. On occasions they have seized the
initiative, for instance by launching amphibious landings on the Israeli coast.
They have popped up to attack from their
warren of tunnels. This week they managed to capture another Israeli soldier,
though it is unclear whether he has survived. “Better that he’s dead,” muttered a
retired officer, fearful that Israel will eventually have to negotiate another one-sided
prisoner exchange.
Some analysts say Hamas’s capability
has begun to approach that of Hizbullah,
the Shia militia in Lebanon, which killed
more than 130 Israeli soldiers and 30 civilians in a month-long war there in 2006.
“Chutzpah used to be Israel’s military
trademark,” says a Palestinian musician,
admiring his compatriots’ latest military
performance. “Now it’s Hamas’s.”
Even if Hamas could be smashed, says
Mr Van Creveld, the Islamist movement
might splinter into a web of factions, some
claiming allegiance to the region’s jihadist
groups, each competing to be more extreme than the other. In the Palestinian
diaspora, including refugee camps in the 1
40 Middle East and Africa
LEBANON
Arabs in Israel
Mediterranean
Sea
SYRIA
Safed
Sea of
Galilee
Haifa
GOLAN
HEIGHTS
Netanya
WEST
BA N K
Lod
Amman
Jerusalem
I S R A E L
Gaza
GAZA
STRIP KhanYounis
Rafah
Jordan
Ashdod
Hebron
Beersheba
JORDAN
Dead
Sea
Maximum ranges
from Gaza (km)
Heavy mortar (10)
Qassam rocket (17)
Grad rocket (20)
EGYPT
50 km
SAFED
The war in Gaza fuels tensions between Israeli Arabs and Jews
Nazareth
Tel Aviv
Ben Gurion
Do we belong?
Upgraded Grad WS-1E (40)
Fajr 5 and M-75 (75)
M-302 (160)
2 region, jihadist sentiment is growing, mak-
ing Hamas look mild in comparison. Israel
could end up being no safer than before.
Some prominent Israelis from the military and intelligence world think Israel
should offer an olive branch as well as its
iron fist. Yuval Diskin, a former head of the
Shabak, Israel’s internal security service,
has written that a military takeover of
Gaza would “not generate real winners”; a
diplomatic push should accompany the
military one. The warring parties should
agree to a long-term ceasefire in exchange
for “fully lifting the economic, land and naval blockade” of Gaza, including the opening of its borders, airport and seaport, to be
overseen by international monitors.
The Economic Co-operation Foundation, an Israeli think-tank, has penned a
similar plan. It calls for Gaza to be rebuilt
under a government headed by Mahmoud
Abbas, head of the Palestinians’ moderate
mainstream authority, who is based in the
West Bank, the larger bit of a would-be Palestinian state. This should be followed by a
resumption of serious Israeli-Palestinian
peace talks.
There are signs that some senior Israeli
ministers, mindful of such advice, may be
changing their minds. Moshe Yaalon, the
defence minister, has spoken in favour of
Mr Abbas returning to stabilise Gaza at the
head of the reconciliation government,
similar to the one denounced by the prime
minister, Binyamin Netanyahu, when it
was formed with Hamas’s endorsement
after the failure of Israeli-Palestinian talks
in April. Some Israeli officials now say they
never really opposed the Palestinian unity
government. That is a sign, says a former
senior Israeli official, that Israeli ministers
may be considering a volte face, dropping
their previous policy of sowing division
F
OR Israelis looking for a harmonious
co-existence between Jews and Arabs,
the town of Safed offered hope. The city’s
Jewish mayor, Ilan Shochat, aspiring for it
to become a hub of eastern Galilee, attracted some 1,500 Arabs to its colleges,
restoring a multicultural feel to a city that
for 60 years had been homogeneously
Jewish. He even spoke of welcoming
Mahmoud Abbas, the Palestinian president, who was born there, as part of a
drive to attract tourists to a city steeped in
Jewish and Muslim historical buildings
and traditions.
But Israel’s war in Gaza is spoiling
Arab-Jewish relations, there and elsewhere in Israel, a fifth of whose 8m citizens are Arab. Israel’s Jews think their
soldiers are defending their homeland
from terrorists with long-range rockets;
Israel’s Arabs see them as massacring
their Gazan kin. Several Israeli mayors,
including Mr Shochat, have suspended
Arab workers for posting support for
Gaza’s fighters on Facebook. Yair Revivo,
mayor of the mixed city of Lod, said they
had been dismissed for “disloyalty to the
state”. Some Israeli universities, hospitals
and even mobile-phone companies have
followed suit.
Some Jewish activists want to go
further. “Death to Arabs,” once the call of
an extremist fringe of Israelis, is increasingly heard at right-wing rallies and in the
social media. When Hadash, Israel’s
predominantly Arab communist party,
with four seats in parliament, staged an
anti-war protest in Haifa, Jewish stonethrowers quickly outnumbered it. Thugs
mugged the city’s Arab deputy mayor,
Suhail Asaad, who was watching the
event with a young son.
Haifa, hitherto a model of co-existence, no longer looks so exemplary. An
exception in largely segregated Israel,
many Jews and Arabs in Haifa live in the
same blocks of flats, but since the Gaza
war started, neighbours have grown
more suspicious of each other. “Our
youth are splitting into two rival tribes,”
says a Haifa lawyer.
The city’s mayor, Yona Yahav, says
that national politicians are not helping.
The championing of Israel as a specifically Jewish state by Binyamin Netanyahu,
Israel’s prime minister, sends a message
to Israel’s Arabs that they do not belong.
Israel’s foreign minister, Avigdor Lieberman, wants to transfer hundreds of thousands of them to Mr Abbas’s Palestinian
territory, stripping them of their Israeli
nationality. In response to an Arab general strike called to protest against the
Gaza war, Mr Lieberman called for Jews
to boycott Arab restaurants and shops.
“The law says that inciting racism is a
crime,” says Hassan Jabareen, who runs a
Haifa-based civil-rights group, Adalah,
Arabic for justice. “But the state just lets it
happen.” As a result, Arab Israelis increasingly style themselves as “Palestinians within”.
On July 21st thousands of Arab Israelis
gathered for an anti-war rally in Nazareth,
Israel’s largest Arab city, under a sea of
Palestinian flags. No sooner had it finished than Arab stone-throwers faced off
police firing tear-gas.
between the Palestinian leaderships of
Gaza and the West Bank.
Some Hamas cadres are also, unusually,
speaking in favour of Mr Abbas resuming
authority in Gaza. Many were buoyed by
his decision, after he vacillated during the
first days of the latest war, to endorse Hamas’s insistence that the blockade of Gaza
should be lifted and that prisoners should
be released as part of a ceasefire accord. He
also seemed to abandon shuttle diplomacy in the region, whose Arab leaders
have mostly been notably loth to speak up
for Hamas. “Finally he realised that angry
Saudis are less important than angry Palestinians,” says a Hamas official in Gaza, surmising that Mr Abbas now has a better
chance of rallying a solid majority of Palestinians in both territories behind him.
But even if Israel’s leaders begin to see
the merit of negotiating with the Palestin-
ians, it is hard to see how they could persuade Israeli voters that the latest war was
worth the lifting of the siege of Gaza and
the freeing of Hamas prisoners. Besides,
Egypt’s new regime and Hamas are virulently at odds. Qatar and Turkey, whose
governments are close to Hamas, are distrusted by Israel. The European Union (EU)
still refuses to talk to Hamas. It is an uphill
struggle to find effective mediators.
Egypt has to be involved if Gaza’s border at Rafah is to be opened. An international monitoring mechanism would have
to be set up, perhaps overseen by an American-led “contact group” including Egypt
and the EU. Whatever the outcome of the
present war, it seems certain that America,
despite its recent failure to make peace, will
be dragged back into the diplomatic fray. Its
secretary of state, John Kerry, is shuttling
around the region—but so far in vain. 7
Iran and its nuclear plans
Time out
The West and Iran will negotiate for
four more months, but the gap is wide
A
FTER some unconvincing last-minute
brinkmanship, Iran and the six world
powers it is negotiating with decided on
July 18th to extend the deadline for an
agreement by four months. The negotiators, seeking to secure a deal to curb Iran’s
nuclear programme in exchange for the removal of sanctions, are taking a break until
September. Then they have until November 24th, exactly a year after the signing of
the “joint plan of action” that first set the
ball rolling, to find a permanent solution.
In the meantime, the provisions of the
six-month interim deal that came into
Middle East and Africa 41
force on January 20th (and which confounded critics who feared it would undermine the sanctions regime) will stay in
place with a few minor tweaks. Iran will
take another step towards neutralising its
stockpile of 20%-enriched uranium by
turning the uranium-oxide powder (into
which it has already been converted) into
fuel plates for a research reactor. In return,
Iran will continue to get very limited relief
on some lesser sanctions and another
$700m a month from frozen bankaccounts
abroad.
The decision to extend the negotiations
makes sense for both sides and was widely
expected. For the mainly Western negotiating team known as the P5+1(the five permanent members of the UN Security Council
plus Germany) the interim deal has increased, if only by a bit, the time it would
take Iran to produce enough weaponsgrade uranium to make a single nuclear device. Some progress has also been made on
a plan to defang the heavy-water reactor at
Iraq’s Christians
Nearly all gone
QARAQOSH
The conquering jihadists are evicting or killing Mosul’s last Christians
F
EW of the Christian women fleeing to
safety in northern Iraq arrived wearing rings in their ears or on their fingers.
Fighters of the Islamic State, the selfproclaimed new name of the Islamic
State of Iraq and Greater Syria (ISIS), the
jihadist group that captured Mosul last
month, relieved them of just about everything valuable—except their lives.
A week ago the Christians in the city
were told they had until July 18th to convert to Islam, pay a special tax, leave, or,
in the words of a statement by the jihadists, they would have “nothing but the
sword.” But then the jihadists changed
their mind: paying the tax was no longer
an option. All Christians were told by
loudspeaker on July 18th that they all had
to leave by the next day—or be killed.
The Arabic letter for N for Nassarah,
meaning Christian, was spray-painted on
their houses, with stencils declaring
them to be “Property of the Islamic
State”. Monks from the monastery of Mar
Behnam, near Qaraqosh, south-east of
Mosul, were allowed to take only the
clothes they were wearing. “You have no
place here any more,” the jihadists are
reported to have said.
Some reckon that a decade ago there
were around 60,000 Christians in Mosul;
by June this year that figure is said to have
fallen by half. Now, for the first time in
over1,600 years, the city will have been
emptied of Christians. The Mar Behnam
monastery dates from the 4th century.
Other sects, including Shia Muslims and
Yazidis, who follow an ancient religion
linked to Zoroastrianism, are being
equally harshly treated.
Most of Mosul’s Christians have fled
east and north to the nearby autonomous region of Kurdistan. “Here is the
last chance Christians have for survival,”
says Kaldo Ramzi Oghanna of the Assyrian Democratic Movement, a political
party tied to one of the world’s most
ancient Christian denominations.
At least he’s alive—among the Kurds
Arak that could provide Iran with an alternative plutonium path to a bomb, by
adapting it to a design that produces far
less plutonium.
Another issue that people close to the
negotiations feel could soon be resolved is
that of the enrichment facility at Fordow.
Buried deep beneath a mountain and believed by many to be invulnerable to attack by conventional bombs, it could now
be converted into a fairly innocuous R&D
centre. Combined with the enhanced-inspection regime that Iran has largely co-operated with, these are potential gains
worth holding on to, at least for now.
For Iran, the choice has been much
starker. To walk away from the table at this
point would be to condemn Iranians to the
prospect of a failing economy permanently locked in the grip of an unyielding
sanctions regime. The damage to the presidency of Hassan Rohani, elected last year
to end Iran’s economic and political isolation, would probably be irreparable. Even
the glowering supreme leader, Ayatollah
Ali Khamenei, might fear the consequences of failure for his regime’s legitimacy.
Western negotiators are clearly hoping
that contemplation of that grim prospect
will give their Iranian counterparts the
space they need to make the further concessions undoubtedly required if a comprehensive agreement is to be reached.
America and its negotiating partners want
to see Iran’s current enrichment capacity—
about 19,000 centrifuges, half of which are
spinning—cut drastically. The Americans
believe that anything above 3,000-4,000
would be impossible to sell to a sceptical
Congress. Yet the Iranians seem to be digging in their heels by coming up with everhigher estimates of the number of centrifuges they aim to have.
In a speech on July 7th, Mr Khamenei
declared that Iran must be able to produce
enough enriched uranium to fuel the Russian-built Bushehr nuclear reactor when a
contract with Russia to supply fuel runs
out in 2021. That translates to a “definite
need” for 190,000 separative work units
(known as SWUs, which are a measure of
centrifuge capacity). Iran would need
more than 100,000 of the older IR-1 centrifuges that are the current backbone of its
enrichment programme, or about 20,000
of the more efficient IR-2m centrifuges it
has recently begun to deploy. The Iranians
say this is in line with what they describe
as their “right to enrich” for civil nuclear
purposes under the terms of the nuclear
Non-Proliferation Treaty (NPT).
America has tacitly admitted that Iran
will have to be allowed to do some enriching as the price for a deal that otherwise
constrains its nuclear plans. But it will not
accept that Iran, given its record of deceit
and clandestine activity, needs a capacity
to enrich that is possessed by very few other countries that use civil nuclear power. 1
42 Middle East and Africa
2 Robert Einhorn, an arms-control expert at
the Brookings Institution in Washington
who served in the Clinton administration,
argues that the Iranian demand “fails the
realism test at several levels”. It has no
need to produce all its own fuel because it
can either go on getting it from Russia or on
the enriched-uranium buyers’ market. Iran
has neither the technical knowledge nor
the infrastructure to produce fuel of the
type Bushehr requires.
If the enrichment capacity that Iran
says it will eventually need is both implausible and far in excess of anything being
contemplated as acceptable to the P5+1, so
too is its concept of the time an agreement
would run before Iran could be treated as a
“normal” NPT signatory. Iran is thinking in
terms of not much more than five years,
while the Americans and their partners
have in mind ten to 20 years of punctilious
compliance before Iran could start building up its centrifuges again. It is possible
that under such a deal Iran might be allowed to continue developing advanced
centrifuges and learn the techniques of
fuel fabrication, thus preparing itself for a
more ambitious nuclear programme after
the agreement expires. That, Mr Einhorn
thinks, could be the basis of a compromise.
Can Mr Rohani sell a deal along those
lines back home, above all to the enigmatic
Mr Khamenei? They may not even know.
But four months is not long to find out. 7
Education in northern Nigeria
Mixing the modern and the traditional
YOLA
Trying to teach children not to be extremists
R
AG-CLAD boys, proffering plastic
bowls and calling out for cash, line the
streets of most big cities in Nigeria’s Muslim north. But they are not street kids.
These are almajiri children, students of Islamic schools who have been sent from
their homes to learn their religion. Almajiri
means “immigrant”, signifying that the
children come from far and wide to imbibe
Islamic values.
In Yola, capital of the north-eastern
state of Adamawa, a 12-year-old called
Abdul says he was sent by his parents to
one such school two years ago and has not
seen them since. Early in the morning and
at night, he joins more than 100 other students in a shabby hut to recite verses of the
Koran. The rest of the day he spends on the
street begging for scraps, which he takes
back to his mallam, the teacher now responsible for him.
Religious education has a long history
in northern Nigeria and in the neighbouring Muslim countries of Niger and Chad.
The children of the elite used to pass
through almajiri schools, which were once
supervised by Nigeria’s northern emirates.
But the system which functioned well before colonialism is now broken.
Today these institutions are unregulated and only the poorest enroll in them. Too
often, mallams are untrained and incapable of providing a decent level of religious,
let alone secular, education. Instead, they
milk their pupils for cash. The government
estimates that there are 9m almajiri children like Abdul in Nigeria. Some are as
young as four when they are sent away
from home.
Poor and often illiterate, these boys
make easy pickings as recruits for Boko Haram, the extreme Islamic insurgency
whose name means “Western education is
forbidden” (see our next article). Locals say
that north of Yola, where the fighters have
their stronghold, money and religious doctrine are used to tempt poor boys into the
terrorist ranks.
“These children are separated from
their parents at a young age. Their psyche
has been changed, so ofcourse they will be
vulnerable,” says Charles Bassey-Eyo of
Axiom Learning Solutions, a Lagos-based
education consultancy. “It’s not just a risk
for terrorism. There are also wider issues
such as child trafficking and sexual abuse.”
Almajiri boys
Aware of the problem, the government
has poured millions of dollars into building over 100 almajiri schools with a more
modern curriculum in northern states, so
that students can get a traditional Koranic
education alongside Western-style classes
in reading, maths and science, plus vocational training.
The government of Kano state has set
up an institute that combines Islamic and
Western education. Its students are encouraged to embrace what is best in religious
and secular schooling. “Formal education
means you can have an even better understanding of the Koran,” says the governor’s
spokesman.
But the government is struggling to
bring almajiri children into the formal education system because the population is
growing so fast, especially among poor
Muslim families who marry off girls when
they are still in their teens. And too few
teachers are capable of melding Western
and Koranic curriculums.
Moreover, in some Muslim communities in the north people doubt the merit of
Western education, seeing it as a threat to
their own traditions, leading even to a kind
of enslavement to alien values. Many parents look up to the mallams and would
rather not send their children away to
boarding schools where they might fall
prey to bad modern ideas.
The children often revere their old-style
teachers. Some critics say that the government’s effort to create permanent schools
is at odds with the often nomadic way of
life praised in the almajiri schools. The
very meaning of almajiri implies that the
more sedentary setting of a modern school
makes it less worthy of respect. Abdul says
that when he grows up he wants to be like
his mallam. But next to him, his friend has a
more up-to-date ambition. “I would like to
read,” he says. 7
Middle East and Africa 43
Chad and its neighbours
Africa’s jihadists, on their way
BONGOR AND N’DJAMENA
Boko Haram thrives on the weakness of governments in the region of Lake Chad
S
QUINT a little and the region skirting
Lake Chad in central Africa resembles
Mosul and Tikrit in northern Iraq: driedout canals, scrubby plains, ragtag bands of
Islamists with guns beneath an unrelenting sun. Thanks to satellite television, the
long-suffering residents around the lake,
which abutted Cameroon, Chad, Niger
and Nigeria until it began to dry up and
shrinkover the past few decades (see map),
have a rough understanding of what has
happened recently in Iraq. They can imagine only too well being overrun by insurgents. Many see parallels between the Islamic State of Iraq and Greater Syria (ISIS),
the savage group that has captured a string
of Iraqi towns, and Boko Haram, the equally murderous Nigerian outfit that is striving
to expand its base beyond its original area
south-west of Lake Chad. The question
everyone in the region is asking is whether
the Nigerian bunch of beheaders can replicate the audacious territorial conquest of
their Arab-led counterparts.
Strolling along what used to be the
shoreline before it receded, Habib Yaba, a
Chadian politician from Massakory, northeast of N’Djamena, the capital, points to a
white pick-up truck of unknown provenance driving across the flat lake-bed from
the west. The border there is unmarked.
“Look how easy it is for anyone to roam
around,” he says, and goes on to describe
local Islamists as increasingly numerous,
well-armed and ambitious. “They rely on
religious as well as ethnic links that cross
the lake. And they tap into the frustrations
of our people.”
Gloomy youths standing in the shade
of a nearby petrol station sound ambivalent towards Boko Haram. Most would
rather have jobs than become religious
marauders, but given the chance they may
be tempted to join a group that is evidently
successful. “Not many other winners
here,” says one. Their parents, sitting in cement buildings littered across a treeless expanse, say they worry that their children
will be receptive to recruitment drives by
Boko Haram. They also report an increase
in night-time traffic, which they blame on
insurgent movements.
Regional governments are fully aware
of the threat and have tried to counter it.
Chad is sending ever more troops to the
border. Checkpoints and military vehicles
are visible on the roads outside N’Djamena, which is close to the lake. A sweating colonel wearing full battledress in the
midday sun swears loudly while inspecting traffic near Bongor, a town close to the
border with Cameroon, 200km (125 miles)
south of N’Djamena.
Oil-rich Chad has one of the fiercest armies on the continent. It has deployed
peacekeepers in Mali and the Central African Republic (CAR). Earlier this year its air
force took delivery of three MIG-29 jets
from Ukraine, an unusually sophisticated
weapon by the standards of the region.
Chad also has a batch of Russian-supplied
combat helicopters.
But neighbouring countries are quite a
bit feebler. Nigeria’s armed forces are
plagued with corruption; its rates of desertion are high. Niger is poor even by regional standards and militarily unable to cope.
The weakest link in the region, however, is
Cameroon.
250 km
C H A D
N IGE R
Lake Chad
Basin
N’Djamena
Maiduguri
Chibok
NIGERIA
SUDAN
Kousseri
Waza
Bongor
Sarh
Ngaoundere
CAMEROON
CENTRAL
AFRICAN REPUBLIC
Nigeria closed its border with it in February and has called its government negligent. Unlike Chad and Niger, it does not allow troops from neighbouring countries
the right of hot pursuit across its border.
That may be partly because Cameroon
and Nigeria lack an agreed frontier due to a
long-running territorial dispute; the UN’s
attempt to mark the 2,100km boundary,
which cuts across mountains and deserts,
may be the biggest project of its kind in the
world. In May Cameroon at last deployed
a thousand troops to the border region.
Within weeks they had killed 40 fighters
apparently allied to Boko Haram in Kousseri, on the border with Chad. More firefights have since taken place.
In May regional heads of state met in
France in an attempt to boost military and
intelligence co-operation. They are backed
by other Western powers. Yet old animosities, linguistic differences between Anglo-
and Francophone troops, and rampant
theft and incompetence mean this will
have a limited effect. A glum Western diplomat says, “If the Iraqi army, aided by
America and Iran, cannot stop marauding
Islamists, then...”
The International Crisis Group, a Brussels-based lobby, warned in April about
Boko Haram activity in “weak countries
poorly equipped to combat a radical Islamist armed group tapping into real governance, corruption, impunity and underdevelopment grievances shared by most
people in the region.”
In May Boko Haram fighters attacked a
camp of Chinese workers near Waza, in
northern Cameroon, taking ten of them
hostage. This was the group’s biggest operation across the border so far. Its fighters
methodically cut off the electricity supply
to the camp, then besieged it for five hours
before overwhelming its armed guards.
Sure enough, the Cameroonian cavalry
failed to turn up.
The refugee recruitment pool
The current crisis next door in the CAR has
made it even harder to counter Boko Haram. More than 100,000 refugees have
poured into Chad as well as into Cameroon. The border region, from Sarh to
Ngaoundere, is dotted with makeshift
camps. Sticks prop up ragged tarpaulins.
UN officials have warned that the host
countries cannot cope. The camps could
become breeding grounds for further violence. “We have seen this before,” says one.
“The Rwandan genocide 20 years ago begot the camps across the border in Goma
and the Congolese civil war and so on.”
Arms smuggling has spiked. In the past
year, government armouries in the CAR
have been systematically looted, often by
Islamist rebels who were beaten back with
French help but managed to take the weapons with them. Local security experts report a marked increase in the sale of AK-47s
as well as heavier stuff. Police have discovered several ammunition dumps apparently used by Boko Haram.
Western governments have expressed
concern that Boko Haram could link up
with known al-Qaeda offshoots in Libya
and Somalia. But the greater immediate
danger seems to be its full-scale expansion
into neighbouring countries that do not yet
have a strong Islamist presence.
Boko Haram’s confidence has grown
since it kidnapped more than 200 Nigerian
schoolgirls in April. Rather than wilting
under the Western attention caused by the
attack, with Michelle Obama leading the
call to “bring back our girls”, the group has
been boosted by the impotent reaction of
regional governments. Some of the girls
are thought to have been sent across Lake
Chad. Many locals believe that Nigerian
fighters will follow, not running away but
conquering. 7
Europe
46 Ailing Croatia
46 Poland’s defence
47 Greece’s bail-out
48 Charlemagne: Alone at the top
For daily analysis and debate on Europe, visit
Economist.com/europe
Italian politics
The ex-Cavaliere is back on his horse
ROME
A favourable court judgment for the former prime minister, Silvio Berlusconi, may
help Matteo Renzi shake up Italy
F
EW events in Italy’s recent history have
had a more crushing effect on morale
than the wrecking of the Costa Concordia,
an Italian-owned and skippered liner that
capsized off the island of Giglio in January
2012. The giant vessel foundered with the
loss of 32 lives as Italy, battered by years of
economic stagnation even before the eurozone crisis, seemed bound for default on its
vast public debts. Silvio Berlusconi had
just resigned as prime minister, internationally derided for his “Bunga Bunga” sex
parties and relationship with a young Moroccan, Karima El-Mahroug (known as
“Ruby Heartstealer”). Confirmation that
the Costa Concordia’s captain, Francesco
Schettino, had left the ship before completing its evacuation prompted a bout of mortified soul-searching.
The removal from Giglio on July 23rd of
the refloated, if rusty, hulk was thus more
than a triumph of salvaging skill and technology: it eased a huge symbolic weight
from the national psyche. And it coincided
with what Matteo Renzi, the newish prime
minister, called “the start of a process of
profound change”. On the same day, Italy’s
upper house began voting on amendments to a bill to reduce the senate from 315
members (excluding senators for life) to
100 and fill it with lawmakers from municipal and regional government or presidential appointees rather than elected representatives. The reform will remove a big
obstacle to effective government in Italy:
the “coequal” powers of its upper and lower houses, which result in legislation frequently bouncing between chambers (and
often getting lost in the process). The proposed new senate will have drastically reduced legislative powers.
For some critics, particularly in the populist Five Star Movement, this is a lurch towards authoritarian government. Others
complain the reform enhances the influence on national politics of Italy’s often
corrupt regional governments. Recent days
have seen claims that the deputy governor
of Lombardy gave a consultancy contract
worth £16,000 ($21,000) a year to his chauffeur and the arrest of a former governor of
neighbouring Veneto, accused of taking
millions for licences to build the barriers
that will protect Venice from flooding.
Some also argue that Mr Renzi should
have secured a broader consensus before
submitting his bill to parliament. Around
7,850 amendments have been tabled in the
senate alone. Maria Elena Boschi, the minister sponsoring the bill, claimed the
amendments would “make us work an extra week and lose a bit of holiday”. But the
reform has much further to go than the
Costa Concordia (which is being towed 200
nautical miles to a breaker’s yard near Genoa). Ansa, a news agency, calculated that
vetting the senate amendments could take
three months. Then the bill must go to the
chamber, and again to both houses. Another objection, surprisingly rarely heard
in Italy, is that its legislators’ time might be
better spent on its still-moribund economy: last week, the Bank of Italy forecast
GDP growth of just 0.2% for this year.
The proposed reform is the fruit of a
pact in January between Mr Renzi and Mr
Berlusconi, who still leads the second-biggest party in the senate. The bill’s prospects
of approval were greatly enhanced when,
on June 18th, a court in Milan upheld the
media tycoon’s appeal against his convictions for allegedly paying for underage sex
with Ms El-Mahroug and misusing his authority to try to conceal their relationship.
Seen through the eyes of Mr Berlusconi
and his supporters, who regard the judges
as puppets of the left, the successful appeal
showed Mr Renzi was honouring his side
of a bargain implicit in the January deal.
Mr Berlusconi had been sentenced to a
year in prison on the vice charge, and six
for abusing his position. That he was acquitted of the first charge was unsurprising: even some of his critics thought the evidence was inconclusive. But although
many felt his sentence on the other charge
was excessive, few expected an acquittal. It
is widely accepted that the then prime
minister telephoned police in Milan to get
Ms El-Mahroug released after she was detained, suspected of theft. The former
prime minister’s lawyer said the verdict
went beyond his “rosiest expectations”. Mr
Berlusconi was “deeply moved” and even
praised the “vast majority of judges”.
The court has yet to give its reasons, but
the way it framed its ruling suggested it had
no option but to clear Mr Berlusconi of the
misuse of authority charge. In 2012, barely
noticed by the public and scarcely reported in the media, Mario Monti’s government, which succeeded Mr Berlusconi’s, 1
46 Europe
2 abolished the offence for which the former
prime minister had been indicted. In its
place, two new ones were created, together
with a gap between them into which, Mr
Berlusconi’s lawyers argued, his conduct
fell. As some commentators now recall, Mr
Monti’s government relied for survival on
the support of Mr Berlusconi’s followers.
The 77-year-old Mr Berlusconi cannot
run for public office again because of another conviction for tax fraud, which also
led to his being stripped of his knighthood.
And the prosecutors in the ‘Ruby’ case are
likely to seek a final ruling from the supreme court, which could yet decide that
the former prime minister is guilty of one
or other offence. But the decision of the Milan court has nevertheless given Mr Berlusconi renewed influence over the fortunes
of Italy. As Il Messaggero, a Rome daily, put
it, l’ex Cavaliere rimonta a cavallo, the exknight is back on his horse. 7
Ailing Croatia
A mighty mess
DUBROVNIK
Croatia is the EU’s newest basket case
T
HIS month Dubrovnik, Croatia’s picturesque Adriatic port city, has been a
favourite destination not only of the habitual cruise-ship tourists but also of foreign
dignitaries. Within a few days, Angela Merkel, Germany’s chancellor, senior officials
from Russia, China, America and New Zealand and almost every single regional foreign minister and president dropped by.
Credit for the flurry of visitors goes to
Vesna Pusic, Croatia’s foreign minister,
who is seen at home as a candidate for secretary-general of the UN.
Yet, however popular a travel destination, Croatia is not well. The economy is
now in its sixth consecutive year of recession. When Zoran Milanovic, the Social
Democratic prime minister, took over in
December 2011, his government promised
painful but necessary reforms. Since then
little has happened. Joining the European
Union a year ago did not result in the
hoped-for boost, partly because the reforms Croatia still needs to do were not the
ones required to join the EU, says Senada
Selo Sabic, an analyst.
There is a cloud over Dubrovnik
Ever since the end of the war in 1995,
successive governments have pledged to
cut Croatia’s bloated public sector, and its
far too numerous local authorities. But, despite some minor reforms, not one, including the current government, has been willing to take on powerful interest groups
such as trade unions, who resist any
change affecting them. The latest fight is
with public-service cleaning staff who oppose a plan to outsource their work. Tenders for research for oil and gas in the east
and drilling in the Adriatic, may yet yield
riches, but not for years to come.
Croatia is stagnating, says Emil Tedeschi, the head of Atlantic Grupa, one of the
few big Croatian companies still expanding, although most of its growth comes
from its business outside the Balkans. The
country is short of management skills, he
says, is overtaxed and the government
lacks courage. It has fought corruption and
increased tax revenues, but has done nothing to cut bureaucracy or red tape.
Liquidity is a huge problem. In a restaurant in Zagreb a wine merchant thanks the
owner for paying him. “You are the only
one,” he says. A man in his mid-thirties, he
was full of hope a year ago. Now, he says,
he is planning to emigrate to Italy. He will
not be alone. Medical staff and other qualified professionals are leaving.
Mr Milanovic has a reputation for intelligence but not for his political skills or
communication. He commiserated with
victims of the disastrous floods in May by
telling them about a burst pipe he once
had. A conflict in his cabinet led to a spectacular bust-up with Slavko Linic, then
minister of finance. After getting the sack,
Mr Linic went on the attack, accusing the
prime minister of laziness, nepotism and
running the country from restaurants.
A row with Mirela Holy, another former cabinet minister, ended with Ms Holy
leaving the Social Democrats and starting
her own environmentalist party. The new
party came in third at European elections
in May, taking 9.4% of votes. Mainly thanks
to the split of the left, the parties of the governing coalition were trounced whereas
the main opposition, the Croatian Democratic Union, did well. Yet in the eyes of
voters all sides are tainted by corruption
and most of them are fed up with what
they see as a political elite unwilling or unable to extricate their country from the
mess it is in. 7
Poland’s defence
A front-line state
WARSAW
The government steps up its defence
spending
P
OLAND spent $4.7 billion on 48 American-built F-16 fighters, but in the event of
a conflict with Russia, the safest place for
the warplanes would be on a German airfield, quips a defence analyst. Threadbare
Soviet-era air defences would be unable to
protect Poland against an attack.
With neighbouring Ukraine in turmoil,
Warsaw is more acutely aware of its vulnerability than at any moment since the
end of the cold war. The defence ministry
recently decided that it only wants systems
that have been deployed by other NATO
members in its tender to build a modern
short and medium-range air defence system. This leaves just two bidders: America’s Raytheon with its updated Patriot system and France’s Eurosam, a consortium
of Thales and MBDA.
When Poland went for the F-16s over rival European bids more than a decade ago
it also had to choose between America and
a member of the European Union. Today
Warsaw is making even bigger efforts to
find the right balance between its strong 1
2 security relationship with America and
the closer economic and political ties it has
forged with other EU countries.
The definitive choice of system will
probably be made this year instead of 2015,
as had been planned. The government will
dodge EU rules on open tenders (which is
allowed for contracts affecting national security) to speed up the process. “There is
clearly urgency,” says Andrew Michta at
Rhodes College in America. “The Poles are
looking at the likelihood of a protracted
confrontation between Russia and NATO
and they are now a front-line state.”
A similar sense of pressure for rapid results is guiding Poland’s multi-year 140 billion zloty ($46 billion) military modernisation programme, one of the largest
investments in new military kit by any
European NATO member. The original
plan called for a tender on supplying about
30 attack helicopters to begin only in 2018.
But replacing Poland’s ageing Soviet-era
Mi-24 “Hind” helicopters has now been
pushed forward to 2016; possible suppliers
have until August 1st to announce their interest. Again, the choice is going to be between America and the EU. The American
bids are likely to be Boeing’s well-regarded
Apache helicopter and the Viper from Bell
Helicopters, whereas European offers will
come from British-Italian AgustaWestland
and Franco-German Airbus.
Poland wants to make its forces significantly more lethal in case of an attack. The
government is pushing hard for America to
sell it upgraded stealthy JASSM cruise missiles, which have a range of almost
1,000km (625 miles). The missiles, which
can be launched from F-16s, would give Poland the ability to counter attack by striking deep into Russia.
The need for such a system may have
seemed in doubt when Poland first announced its military modernisation programme, to be completed in 2022. But Russia’s annexation of Crimea, its support for
the insurgency in eastern Ukraine and its
aggressive Russian-Belarusian war-games
in recent years, not far from Poland’s eastern border, have made policymakers
much more aware that the country faces a
real security risk.
Russia’s actions on its post-Soviet periphery are likely to result in a more heavily armed Poland. Poles’ worries about
their vulnerability have grown owing to
the reluctance of western European countries to base NATO troops in Poland permanently. Radek Sikorski, the foreign minister,
wants two heavy brigades shifted to Poland, but recent opinion polling shows that
three-quarters of Germans oppose such an
idea. There is an old Polish saying, “if you
have no one to count on, count on yourself”. Though Poles know they are much
safer since joining NATO, history reminds
them to rely as much as possible on their
own efforts. 7
Europe 47
Greece’s bail-out
Still tightly monitored
ATHENS
International creditors remain sceptical about Greece’s ability to reform without
close supervision
T
OURISTS dived for cover beneath restaurant tables as shooting broke out in
Monastiraki, a crowded neighbourhood in
Athens, on July 16th. Greek anti-terrorist
police had trailed Nikos Maziotis, one of
the country’s most wanted fugitives, to a
shop selling camping equipment. As he
fled, Mr Maziotis opened fire with a handgun. He was arrested after being shot in the
shoulder by a police officer.
Appearing before an investigating
judge, Mr Maziotis said his job was “being
a revolutionary”. He is accused of belonging to Revolutionary Struggle, a leftist extremist group that claimed responsibility
for staging a rocket attack against the American embassy in Athens in 2007 and for
several car-bomb explosions. The most recent, outside the IMF office in Athens in
April, came at a time when Greece took another step towards recovery, issuing its first
sovereign bond since 2010.
Athens is enjoying its best year for tourism since it staged the summer Olympics
in 2004. Fortunately, the shoot-out in Monastiraki was quickly over. “If there had
been serious casualties, bookings would
have been cancelled across the board. It
goes to show how fragile the tourist industry is,” says Panos Asimacopoulos, a travel
agent in Athens.
The Greek recovery is similarly frail.
After a record 24 quarters of negative
growth, the economy is forecast to grow by
almost1% this year. About 20,000 new jobs
will be added over the summer, according
to the National Bank of Greece, reversing
six years of declining employment.
Business-confidence indicators are at a
six-year high and consumers are again
flocking to Athens’s shopping malls. The finance ministry says Greece is on track to
hit this year’s target of a budget surplus, before interest payments, of1.5% of GDP.
Even so, dozens of small but significant
structural reforms are lagging behind
schedule. Greek officials look forward with
trepidation to the return in September of
the troika, officials from the EU and IMF
who supervise the country’s €172 billion
($231.5 billion) bail-out. It will be their final
joint review of progress: the EU loan programme ends this year although the IMF
plans to disburse another €16 billion in
2015 and the first quarter of 2016.
Negotiations will be tough. The Greeks
want to ease the burden on hard-pressed
taxpayers by reducing levies on fuel and,
perhaps, by fudging an important reform
Light at the end of the tunnel?
Greece’s:
FORECAST
30
unemployment rate, %
20
10
GDP, % change on a year earlier
+
0
–
2008 09
10
11
12
13
14
15
10
Sources: Eurostat; European Commission
that involves the large-scale dismissal of
public-sector workers, which is fiercely opposed by the PanHellenic Socialist Movement, the junior partner in the fractious coalition government led by the centre-right
New Democracy party of Antonis Samaras, the prime minister. Another round of
painful pension cuts is looming, on top of
earlier across-the-board reductions averaging 30%.
The newish finance minister, Gikas
Hardouvelis, an America-trained economist, wants to slash the troika’s list of some
700 reforms to be enacted by the end of
this year, arguing that such micromanagement is no longer required. With the unpopular “memorandum” (as the bail-out
programme is called by Greeks) on its way
out, it is time, according to Greek officials,
for Athens to assume ownership of the
next stage of reform. They argue that six
years of exacting adjustment are starting to
show results, so Greeks are now readier to
accept changes that could ensure them a
prosperous future. Outsiders are not so
sure. They fear that without the troika’s rigorous oversight, tax collection will slow,
public-sector reform will be dropped and
spending controls relaxed.
Next year’s budget will be included in
the current EU programme, making slippage less likely for the moment. Debt-relief
negotiations, due to start at the end of the
year, may also offer an opportunity for
Greece’s euro-zone partners, the biggest
creditors, to set conditions. Greece is seeking longer maturities and fixed rather than
floating interest rates on its mountainous
debt, set to reach 180% ofGDP this year. The
troika, much disliked by Greeks, may disappear but tight surveillance of Greek progress will not. 7
48 Europe
Charlemagne Alone at the top
Germany has done much to atone for the past. Now it faces leadership, a greater burden
two lessons from 1914. One is the importance of the EU, which
preserves the peace, manages disputes and ensures that countries live by the rule of law, not by the sword. Another is that Europe must not allow another failure of diplomacy in which escalation leads to catastrophe. In Ukraine, that means seeking a
political deal with Russia. Even as sanctions increase, says Mr
Steinmeier, Europe must always be prepared to “pull back”.
To some of Germany’s friends, such thinking stirs memories
of the second world war. For America and Britain radical ethnonationalism must be confronted firmly, not appeased as Chamberlain did with Hitler in Munich in 1938; for Poland and the Baltic
states, deals with Russia raise fears of betrayal, akin to the Molotov-Ribbentrop pact that carved up eastern Europe in 1939.
A
LLEINSCHULD, the belief in “sole guilt” for one if not two
world wars, has had an enduring impact on Germany’s public life. It explains why there is little commemoration of war dead,
even for this week’s centenary of the outbreak of the Great War.
The first Weltkrieg is regarded as the terrifying overture to the second. It also explains Germany’s attachment to pacifism and its reluctance to show the leadership that friends demand of Europe’s
biggest economy. Over recent decades, Germany’s answer to Alleinschuld has been to concentrate on its economy and cover itself with the European flag.
“The Sleepwalkers”, a book by Christopher Clark an Australian-born historian at Britain’s Cambridge University, on the origins of the first world war, has been an unexpected success in
Germany, partly because it reassesses the question of war guilt.
“There is no smoking gun in this story; or, rather, there is one in
the hands of every major character,” it concludes. “Viewed in this
light, the outbreak of war was a tragedy, not a crime.” The point
has been made by others, not least German writers. But in a country where guilt was branded most deeply on public consciousness by a German historian, Fritz Fischer, with his1961book “Griff
nach der Weltmacht” (“Bid for World Power”), it takes a foreigner
to try to efface it.
Europe in 1914 was a continent enjoying the fruits of the first
burst of globalisation, similar in some ways to Europe in 2014, except that today no alliance blocs are at daggers drawn and no parvenu power is demanding a place in the sun. Germany is at peace,
united and prosperous. Instead ofbeing encircled by foes, it is surrounded by friends. Germany has become the European Union’s
dominant force and, despite some grumbling, no other state seriously tries to counterbalance its power. Many old enemies, especially in central and eastern Europe, want closer ties.
And yet there is some foreboding that such bliss may not last.
An ageing population will be a drag on growth. The euro crisis is
in abeyance, not at an end. The European project faces a popular
backlash. And although Germany’s neighbours are friends, they
are surrounded by dictators and foes, and much violent instability from Ukraine to Gaza and beyond. Some Germans earnestly
wonder whether they might again be drawn into war.
Frank-Walter Steinmeier, the German foreign minister, draws
The new German question
European integration has been, at its heart, an attempt to deal
with the age-old German question: tame German power and
harness it to propel Europe’s economy. For decades Germany
willingly sat in the engine-room, and France in the driving seat.
Such roles were bound to change with the unification of Germany in 1990. Yet the transformation, when it came, took place
surprisingly fast.
The euro, far from tying Germany down, hastened its rise.
Having lived through the hyperinflation of 1923 Germany long
maintained a strong currency and low inflation, so it knows better than many others how to preserve its competitiveness within
the euro zone. When the euro zone’s debt crisis erupted in full in
2010, Germany had the deepest pockets, and could therefore set
the terms for bail-outs and reform.
Another reason Germany stands out is that it has no real partners: France is politically paralysed, Britain is walking away and
Italy is overburdened by debt. It helps that in Angela Merkel, Germany has a respected chancellor. There is a general acquiescence
in German power that has much to do with the fact that it is unthreatening; Germany’s hegemony was, for the most part, undesired and something of a surprise to Germans themselves.
For this columnist, preparing to leave Brussels after chronicling Europe’s woes for four years, and having criticised Germany’s mistakes (for instance, in pushing austerity too hard), it is
hard not to admire its industriousness, its readiness to examine
its soul and its quest for consensus. On the streets of Berlin, the
sight of Stolpersteine, the discreet little brass cobbles at the entrance to buildings, bearing the names of former residents killed
by the Nazis, is among the most powerful gestures of remembrance and contrition.
Reluctantly, Germany in Europe has become a bit like America
in the world, the indispensable power. It is too big, too successful,
to be left on the sidelines. The danger of Russia must be confronted. The euro zone must not be left to fester, and the EU must be reformed so it does not break up. The relationship with America
must be prevented from fraying over allegations ofspying, and rekindled with a big trade deal.
Having acknowledged its guilt for past aggression, Germany is
in danger of committing the opposite sin, inaction. Peace is not
just the absence of war, but the defence of hard-won freedom.
Many of those who call for “normalisation” argue that Germany
must assert its interests. Actually, the burden is even greater: it
now has to pursue the interests of all of Europe. 7
Economist.com/blogs/charlemagne
Britain
50 Why Labour loves America
Bagehot is on holiday
For daily analysis and debate on Britain, visit
Economist.com/britain
Supermarkets
Tescopoly no more
Britain’s biggest retailer has ousted its boss. The next one has some difficult strategic
decisions to make
D
URING his three-year tenure as Tesco’s
boss, Philip Clarke cast himself as a visionary. He delivered weighty speeches
urging retailers to “lead the revolution” or
risk becoming “victims of evolution”. As
head of Britain’s biggest retailer, and the
world’s second-largest by sales, he seemed
to be doing just that. Tesco had built its
business on sprawling supermarkets, but
Mr Clarke knew their time was passing
and devised new uses for them. He
ramped up sales online and through convenience stores, the channels of the future.
With a movie-streaming service, Blinkbox,
and a tablet, Hudl, Mr Clarke started to
create an Amazon-like “ecosystem” that
would bind shoppers to Tesco. Few retailers seemed to be more in tune with what
he called the “informed, demanding, restless 21st-century consumer”.
Yet on July 21st the visionary suddenly
lost his job. The news coincided with
Tesco’s second profit warning since 2012
and followed three consecutive quarters
of declining same-store sales. In Britain,
source of two-thirds of its revenue, Tesco’s
market share has slipped (see chart). Apparently, he did not know 21st-century consumers as well as he thought he did.
Tesco’s board picked a successor who
will be expected to avoid that trap. Unlike
Mr Clarke, who started out stacking
shelves as a teenager, Dave Lewis has never been a retailer. He built his career at Unilever, most recently in charge of personalcare products, and will be the first outsider
to lead the 95-year-old grocer. Mr Lewis
sold a lot of Dove soap by telling women
that they are more beautiful than they
think. He will now try to cast Tesco in an
equally flattering light.
That will not be easy. Under Mr Clarke’s
predecessor, Sir Terry Leahy, boss from 1997
to 2011, Tesco extended its narrow lead over
Sainsbury’s into a nearly insurmountable
one. It also joined global giants like America’s Walmart and France’s Carrefour in
venturing into overseas markets. But some
British consumers resented Sir Terry’s “Tescopoly”, which steamrollered smaller rivals; others turned away because it
skimped on investment in stores. Mr
Clarke pulled out of America and Japan
and improved service and fittings at home.
To make big stores more appealing he put
Every Lidl hurts
Selected supermarkets, market share, %
35
Tesco
30
25
20
15
Sainsbury’s
Asda
10
Hard discounters
5
Waitrose
1994
2000
Source: Kantar Worldpanel
05
10
14
0
in restaurants, cafés and even gyms.
But revolutions are generally bad for
the reigning powers and in Tesco’s case too
many are happening at once. People are
eating more of their meals outside their
homes. Online shopping has pulled customers from big stores; a squeeze on real
wages has driven them to “hard discounters” like German-owned Lidl and Aldi
(whose co-founder, Karl Albrecht, died on
July 16th). Mr Clarke initially dismissed the
discounters as “niche” competitors, but
they are opening up in richer areas and in
more convenient locations. Shoppers,
pleasantly surprised by the quality of their
wares, keep coming back. If they fancy
something classier they go to Waitrose,
Marks & Spencer or even Sainsbury’s.
Mr Clarke’s downfall was his failure to
give Tesco a distinct identity as either a
high-quality grocer or a low-price one, says
Natalie Berg of Planet Retail, a market-research firm. From 2010 to 2013 Tesco raised
prices by 4.6% a year while Asda, now its
closest competitor, lifted them by 2.4%, according to Bernstein, an equity-research
firm. Tesco charges 4-5% more for branded
goods than Asda. Barrages of “price drops”
and salvoes of coupons did not fool consumers. And even with its smartened-up
stores, Tesco lacks the reputation for service and quality that would justify its higher prices.
The most obvious task facing Mr Lewis
is to make shoppers like Tesco again. Beyond that, there is little agreement on what
he should do, which suggests how daunting his job will be. Some urge Tesco to
launch an all-out price war, the first shots
of which have already been fired. It cannot
match the discounters, which simplify
their operations by stocking1,500-odd products in a typical store rather than the
40,000 in a Tesco supermarket. But it could
recapture its position as the penny-pinch1
ers’ favourite mainstream store.
50 Britain
2
Others think Mr Clarke was broadly
pursuing the right course by upgrading big
stores while investing in online and convenience shopping. Ms Berg advises Tesco
to “play to discounters’ weaknesses”,
which include skeletal service and no online offering. It would still have to cut
prices (and persuade consumers it was doing so) but without making the experience
of shopping less agreeable. Bruno Monteyne of Bernstein argues for a radical
scheme: the big stores should be grouped
into lower, middle and upper tiers, each
with its own pricing and service levels.
Tesco’s sheer size limits Mr Lewis’s options. Any lurch up or down market would
alienate some of its core customers and
feed the growth of its rivals. Tesco has little
choice but to be all things to all people. It
has to find a way to do that better. 7
Politics
The Labor Party
Why Ed Miliband’s lot are so besotted
with Uncle Sam
W
HEN opposition leaders visit the
American president, folk back in
Westminster pay close attention. Can he
pull off “statesmanlike”? Does he look adequately prime ministerial? But even by the
usual standards of such trips, Ed Miliband’s “brush-by” with Barack Obama on
July 22nd—a crumpled House of Commons carrier bag containing DVDs for the
president in tow—had the Labour Party
trembling with anticipation.
This is curious. Pro-Americanism used
to be the badge of the Labour right, and as
leader Mr Miliband has moved his party to
the left. He opposed the Iraq war and
hopes to make the British economy less
Anglo-Saxon and more Germanic. Yet Labour has never been so close to America,
says Matt Browne of Global Progress, a
think-tank in Washington, DC.
Mr Miliband is a case in point. He prefers to read RealClearPolitics, a Chicagobased website, rather than British newspapers and fires off e-mails to aides containing American speeches and articles. Each
received a biography of Theodore Roosevelt from him last Christmas. Ivy League
academics frequently pass through his office on their visits to London.
This enthusiasm runs through Mr Miliband’s party. Labour MPs’ shelves bend
under Robert Caro’s biographies of Lyndon Johnson. Party members quote mantras from Mr Obama’s presidential runs.
When Labour hired the consulting services of David Axelrod, the chief strategist
on those campaigns, one party blog de-
scribed him as a “deity”.
So dazzled is Labour that it has outsourced much of its planning for next
year’s general election to America. Mr Axelrod is based in Chicago. Matthew McGregor, another veteran of the Obama campaigns who is running Labour’s digital
operation, lives in Brooklyn. Arnie Graf, its
grassroots guru, is in Baltimore.
Party officials and shadow cabinet ministers regularly shuttle across the Atlantic
to visit their hires and heroes. Favourite
ports of call are the Centre for American
Progress in Washington and Harvard University (where Douglas Alexander, Labour’s foreign-affairs spokesman, is a regular). Days are typically spent meeting
wonks and advisers, evenings at the baseball, ice hockey or (when in the capital)
Bobby Van’s, a steakhouse near the White
House. Increasingly, trips include stops in
New York to admire the work of Bill de Blasio, the city’s leftish mayor.
That Labour is so besotted with America is partly a quirk of personal history. Almost all of the party’s top figures have
close transatlantic links. Six members of its
front bench have lived there for a year or
more (the equivalent figure for the Conservative-Liberal Democrat government is
two). Mr Miliband spent part of his youth
in Massachusetts and taught at Harvard
from 2002 to 2004—perhaps improbably,
his course on “the politics of social justice”
was standing-room-only. He left with an
abiding love of the Boston Red Sox, a baseball team, about which he has been
known to tweet in the middle of the night.
The result of such ties, argues Mr
Browne, is that Labour’s top figures have
an unusually strong cultural affinity for the
United States and its leaders. “Let Miliband
be Miliband,” Mr Miliband reportedly told
an aide, paraphrasing a line from the West
Wing, an American political drama.
Yesssss!
The story of American politics over the
past few years also contains much to
please Labour types. A centre-left politician twice defeats conservative opponents
to become president, implements a
Keynesian stimulus package and—as the
recovery takes hold—warns of the scourges
of inequality and stagnant wages. For Mr
Miliband, who also venerates Elizabeth
Warren, a banker-busting senator, there is
much Britain can learn from this. (The Tories, by contrast, have no such affinity with
Republicans, preferring the less shouty
conservatives in Australia and Canada.)
Looking for New England
More than in the past, then, Labour looks
to America not just for campaign ideas but
for policies. The party’s anti-austerity
stance was largely conceived by Ed Balls,
now its shadow chancellor, while visiting
friends on the east coast in 2010—his defining speech on the subject was tapped out
on his phone from the passenger seat of a
camper van. Labour’s programme for government has a similar provenance. Mr Miliband’s plans to boost the living standards
of poor workers were inspired by Jacob
Hacker and Peter Hall, of Yale and Harvard
respectively. This autumn Mr Balls will
launch a programme of policies for “inclusive prosperity” with Larry Summers, a
former American treasury secretary.
The flow of ideas and inspiration is,
however, mostly one-way: British politics
does not inspire the feverish excitement in
the United States that Washington’s razzamatazz does in London. Mr Miliband’s visit
barely made a splash. Still, it was at least
more dignified than that by Gordon Brown
in 2009, whose five requests to meet Mr
Obama were declined and who ended up
cornering the president in a basement
kitchen at the UN. Better a brush-by than a
brush-off. 7
International
52 Letting patients see doctors’ notes
52 Female genital mutilation
Patients’ reviews
DocAdvisor
Patients around the world are starting to give doctors a piece of their mind. The
result should be better care
W
HEN a patient in Illinois did not like
the result of her breast-augmentation
surgery, she reacted like many dissatisfied
customers: by writing negative comments
about her doctor on websites that feature
such reviews. Her breasts, she said, looked
like something out of a horror movie. Other unhappy patients joined her online,
calling the doctor “dangerous”, “horrible”
and a “jackass”. He sued them for defamation. (The cases were later dropped.)
Other doctors have filed similar lawsuits, mostly in America. Though few have
won, their reaction illustrates a discomfort
with patient reviews felt by many of their
colleagues. Some question the accuracy
and relevance of the feedback; others complain that privacy rules prevent them from
responding. Sites often have just a handful
of ratings per doctor, meaning results can
be skewed by a single bad write-up.
But increasingly, doctors cannot afford
to ignore them. They often lead the results
of searches for doctors’ names. In America,
the world’s biggest health-care market,
firms that offer health insurance are making employees pay a bigger share, pushing
them to search for guidance online. The
most sophisticated sites are attracting
more users by including reviews and other
features. ZocDoc also lets patients make
appointments. Offerings from Vitals include a quality indicator it has built using
data from 170,000-odd sources. Castlight
Health includes prices gathered from insur-
ance bills and other data. The differences
can be startling—the cost of a brain scan in
Philadelphia ranges from $264 to $3,271.
With around 60 review sites, America
leads the way. But they are also popping up
in other countries where patients pay for at
least part of their care. Practo, an Indian
firm that schedules appointments with
doctors, plans to start publishing patients’
reviews later this year. More and more Chinese patients, who generally do not have a
regular family doctor, are using a site run
by Hao Dai Fu (“good doctor”) to navigate
their country’s unstructured health system, says Haijing Hao of the University of
Massachusetts. It has profiles of around
300,000 doctors and over1m reviews.
Increasingly, doctors, hospitals and
health systems are seeking to turn the
trend to their advantage. Some now offer
incentives, such as prize draws, for patients
to go online and rate them. A survey by
ZocDoc found that 85% ofdoctors on its site
looked at their ratings last year. And a
handful of health-care providers have
even started to publish reviews themselves. The University of Utah, which runs
four hospitals and ten clinics, was one of
the first, in 2012. Its doctors’ complaints
about independent sites encouraged it to
publish patient feedback that was already
being collected for internal use. Some of its
doctors now have hundreds of reviews.
Preparing staff for the publication of all
the comments, good and bad, took a year,
says Brian Gresh, who helped create the
university’s system. But their worries appear to have been groundless: most reviews are positive, and patient-satisfaction
scores improved after the move. Happy patients communicate and co-operate better
with their doctors, says Tom Lee, the chief
medical officer of Press Ganey, a firm that
surveys patients on behalf of health-care
providers, including for the University of
Utah. Its boss, Pat Ryan, predicts that plenty
of other hospitals will follow suit.
Some doctors are still sceptical, fearing,
for example, that patients may judge a hospital on its decor rather than its care. But patients are rarely swayed much by such trivia, insists Mr Ryan: “If you have flatscreen televisions and your communication is poor, you will get very bad scores.”
Moreover, the feedback reminds doctors
that every meeting with a patient matters,
so they try harder.
America’s government has started to
link health-care payments with patient
feedback: Medicare, a federal scheme for
over-65s, recently started to give bonuses
to hospitals that score well. The Cleveland
Clinic, a big hospital, uses these data to improve its care. Britain’s National Health
Service has surveyed patients for over a decade (though not on the performance of individual doctors) and published the results
online—though some think it could use its
findings better.
But many other governments do not
even ask patients for their opinions. German doctors and hospitals, for example,
have fought efforts to link funding with
quality of care, says Maria Nadj-Kittler of
the Picker Institute Europe, a research organisation, and are therefore hostile to patient reviews. This is a missed opportunity.
Patients who hold their doctors accountable make them better and more efficient.
That is good news no matter who pays. 7
52 International
Doctors’ notes
Careful what you
write
Female genital mutilation and child marriage
Progress, but too slow
Too many girls’ lives are still being destroyed
Married in haste
Countries with the highest share of child brides
% of women aged 20-49 years married or in union*
before age 15
0
between age 15-18
20
40
60
Bangladesh
Chad
Mali
C.A.R.
India
Guinea
Ethiopia
Burkina Faso
Nepal
Source: UNICEF Global
Databases 2014
*Based on surveys
between 2005-13
barely falling. Without further progress
the number of former child brides will
still be over 700m in 2050.
Many countries have passed laws
against both practices. That is essential,
but not sufficient. Both stem from deeply
rooted social norms which can only be
changed by educating parents about the
harm they cause. Making foreign aid
conditional on results gives governments
an extra incentive not just to pass laws,
but to enforce them. Police and women’s
activists in some countries have set up
phone hotlines and safe houses for victims or girls at risk. Most important, says
Babatunde Osotimehin, the head of the
UN Population Fund, is to make sure that
girls go to school and finish their studies.
Latest available year
IRAQ
EGYPT
LIBERIA
NI G E R I A
TOGO BENIN
% of females aged 15-49 years
<10
26-50
>80
10-25
51-80
FGM is not
concentrated in
these countries
Source: UNICEF Global
Databases 2014
CHAD
BURKINA
THE GAMBIA
FASO
GUINEAGUINEA
BISSAU
IVORY
SIERRA LEONE
COAST
C AMER
C.A.R.
EN
YEM
DJIBOUTI
S U D A N
ETHIOPIA
IA
NIGER
AL
SENEGAL
ERITREA
MA L I
M
MAURITANIA
80
Niger
Prevalence of female genital mutilation
GH A N A
Correction In our story in last week’s issue on the
illegal wildlife trade (“Bitter pills”), we said that whole
bear’s gall bladder sold for more than six times as much
as cocaine. It actually sells for slightly less. Sorry.
IRST the good news: according to a
report published on July 22nd by
UNICEF, the share of the world’s girls
who are subjected to female genital
mutilation (FGM) is around a third lower
today than it was three decades ago. Now
the tragedy: seven girls still have their
genitals cut or mutilated per minute. And
the rate at which the practice is declining
is not enough to counter population
growth. Unless the pace picks up, the
number of victims will grow from 3.6m a
year now to 4.1m in 2035.
At its worst, FGM involves cutting off
the clitoris and labia and stitching the
vagina almost closed. In the African
countries where it is a traditional rite of
passage, as many as nine girls in ten are
subjected to the barbarous practice (see
map), which causes excruciating pain
and can lead to infection, infertility and
sometimes death.
Child marriage, another custom that
destroys girls’ lives, is also common in
Africa, and in parts of Asia too. The future
life of a child bride is likely to be poor and
socially isolated. Schooling will probably
fall by the wayside. Early childbearing
may destroy her health or kill her.
UNICEF reports that more than 700m
women alive today were married before
turning18—and 250m of those before
turning15.
In some countries most women aged
between 20 and 49 were married when
they were children (see chart). And
though, like FGM, the tradition is slowly
fading, high fertility where it is most
common means absolute numbers are
N
A
DOCTOR who sees a child with an
odd appearance might write “FLK” in
his notes. Short for “funny-looking kid”, it
is meant not as an insult, but as a reminder
to watch for slow growth and mental retardation, which can accompany physical abnormalities. Later he may add “FLD”: funny-looking dads tend to have funnylooking offspring. But such candour may
become a thing of the past as more hospitals and clinics make doctors’ notes available to patients and their guardians.
The trailblazers see open notes as a way
to engage patients in their treatment, and
to keep their other carers informed. A
study in 2012 in the Annals of Internal
Medicine of 105 American doctors who
shared their notes with 20,000 patients
backs this position. Over four-fifths of the
patients who visited their doctors in the
following year had looked at their notes. In
a survey, about three-quarters said they felt
more in control of their care. Few said the
notes were confusing, offensive or worrisome; nearly all wanted access to continue.
The doctors who took part reported little change in their behaviour and little extra work, though some did alter the way
they wrote about charged topics such as
cancer, mental health, substance abuse
and obesity. As for FLK and other medics’
slang, Tom Delbanco, one ofthe study’s authors, says: “Good doctors don’t label
things; good doctors describe things.”
Some 3m American patients now have
easy access to their doctors’ notes, including those at leading institutions such as the
Cleveland and Mayo clinics, and 1m of
those cared for by the Department of Veterans Affairs. This is good business as well as
good medicine. Patients with Kaiser Permanente Northwest must register on its
website in order to read their doctors’
notes, which makes their care easier to
manage and lowers the chance that they
will switch to a competitor.
Health administrators elsewhere are
watching with interest. Some British doctors have already opened their notes and
more are likely to follow suit if the National Health Service keeps its promise to give
all patients online access to their records by
next year. The next step, says Dr Delbanco,
is getting patients to contribute to their records. Funny-looking doctors take note. 7
F
OO
More patients are getting to read their
doctors’ scribblings
DA
AN KENYA
UG
TANZANIA
SO
Business
54 Bill Ackman v Herbalife
55 Microsoft v American crime-busters
55 A silver lining in Microsoft’s cloud
56 A new rival for staid German beers
57 Schumpeter: Unplugged and
unproductive Chinese firms
For daily analysis and debate on business and
our weekly “Money talks” podcast, visit
Economist.com/business-finance
Siemens
Fixing the German dynamo
MUNICH
Joe Kaeser is transforming Siemens’s structure; changing its culture will be harder
L
ONG-LIVED companies can change radically over time. Nokia, for example, began in 1865 as a pulp mill; recently it sold its
mobile-phone business to Microsoft (see
page 55) and now it mainly makes networking equipment. By contrast, Siemens
has been quite consistent. The Economist
first wrote about the company in 1868,
when it joined a consortium to build a telegraph cable from Britain to Russia and India. In an 1882 article about another tech
boom—the spread of electric lighting after
the perfecting of the dynamo—we noted
that Siemens was hedging its bets by making both alternating- and direct-current
ones. To this day, when asked to sum up his
firm’s business in a word, Joe Kaeser, its
chief executive, says, “electrification”.
Mr Kaeser is nonetheless hoping to remake Siemens, at least partly. After electrification, he likes to add two more words:
automation and digitisation. The engineering giant is to focus on doing these
three things profitably. Businesses that do
not fit these criteria will be fixed or sold.
The reconfiguration of Siemens is a big
project. The company employs 360,000
people in dozens of countries, and its position at the heart of Germany’s industrial
economy makes change at home sensitive.
It manufactures everything from hearing
aids to gas turbines, from trains to software. Analysts wonder if it is in too many
businesses. It is not doing so badly—an-
alysts reckon that its operating margin is
about 11%. But it suffers from comparison
with its American archrival, GE, whose industrial side had an operating margin in
the most recent quarter of15.5%.
Mr Kaeser’s predecessor, Peter Löscher,
was brought in from outside in 2007 to
clean up after a bribery scandal. He strove
to hit a target of increasing annual revenues by around half, to €100 billion ($135
billion). Siemens began taking orders it
could not complete on time and on budget,
and missing profit targets. Last July the supervisory board showed Mr Löscher the
door and put Mr Kaeser—who had been involved in many of the big decisions as
chief financial officer—in his job.
Mr Kaeser is liked by analysts, and unlike Mr Löscher he is a longtime Siemensianer, having joined in 1980. He faces three
tasks: to slim the company’s bureaucracy,
fine-tune its portfolio and execute projects
better. He has made a big start on the first
and some progress on the second. The
third will take the most time.
At times Siemens conforms to a German stereotype of valuing process at the
expense of results. So, in May, Mr Kaeser
began a reorganisation. Under his predecessor there were six layers of bureaucracy
between the managing board and the project leader on a billion-dollar contract. Mr
Kaeser is simplifying things by merging the
group’s 16 divisions into nine, and remov-
ing an intermediate layer in which the divisions were grouped into four sectors. This
will affect 11,600 jobs, though Mr Kaeser
was annoyed when he announced this
only for it to be reported that they would
all be cut. He hopes to redeploy many of
the workers concerned, though some will
have to go—the reorganisation is part of a
billion-dollar savings plan—and Mr Kaeser
has yet to satisfy either nervous staff or impatient analysts by being more precise.
Siemens’s health-care business, which
makes body scanners and other hospital
equipment, will gain a special, mostly independent status. It is the most profitable
of the four former sectors, but has the fewest synergies with the electrification-automation-digitisation chain. Mr Kaeser has
raised the possibility of listing it separately.
Andreas Willi of JPMorgan, a bank, thinks
this a canny move, relieving Siemens of
part of the “conglomerate discount” that
markets impose on sprawling companies,
but letting the company wait for the most
profitable time to list it.
Train departures
Elsewhere in the portfolio, Mr Kaeser says
frankly that almost €15 billion of Siemens’s
revenues, about18% of the total, come from
businesses making no profits. The electricity-transmission side is struggling, but cannot be sold ifSiemens is to be present in the
whole electrification chain. The train rolling-stock business has also been under
pressure; it seems more dispensable. Some
strong businesses will go, too: airport logistics, parcel handling and hearing aids are
doing well, but do not fit the vision.
In June Siemens (alongside Mitsubishi
Heavy Industries of Japan) lost a contest
with GE to buy parts of Alstom, a French rival in turbines and rail. Some analysts saw
the offer as defensive, improvised and 1
54 Business
Electric shocks
Siemens’s:
net income
charges*
€bn
10
8
6
4
2
0
2000 02
04
06
08
10
12 13
Financial years ending September
Sources: Morgan
*Restructuring costs, writedowns,
Stanley; Bloomberg
contract losses and other charges
2 complex. But one says that Mr Kaeser as-
sured him privately, “I know what I’m doing,” hinting that he did not necessarily
want to win the deal. Partly because the
Siemens-led alternative was on the table,
GE had to make concessions, and ended up
in a complex set of joint ventures, in some
cases with the meddling French state as a
partner. Asked about his motives, Mr
Kaeser says: “At any given point in time in
the process I was always focused on doing
the best for Siemens—whatever that
means,” allowing himself a grin.
Still, Siemens lost an opportunity to
bulk up its turbines business by absorbing
part of Alstom’s. So, how else might it now
seek to grow? Mr Kaeser concedes that the
company slept through the revolution in
shale oil and gas. But a trimmer Siemens
will have capital to spend on developing
things like pumps for oil exploration and
gas-liquefaction terminals. Mr Kaeser says
that more gas turbines will be sold next
year in North America than in the next ten
years in Europe. So, surprising observers,
he has hired an experienced but relatively
little-known American, Lisa Davis, from
Shell to run the revamped energy division,
and has based her in Houston.
Trimming and adding are all well and
good, but Siemens must also improve its
operations. Here another German stereotype, of efficient execution, does not apply.
The company is innovative (spending 5.7%
of revenues on research and development,
a figure GE’s industrial side has been striving to catch up with) but its poor execution
of projects has been a millstone dragging
down profitability. Whether in trains or offshore wind, expensive and embarrassingly public problems have resulted in a series
of special charges, one of which was a
€287m hit for failures in a transmissiongrid project in Canada earlier this year. According to Ben Uglow of Morgan Stanley,
another bank, Siemens’s contract losses,
writedowns, restructuring and other charges have totalled $34.5 billion since 2001,
knocking huge dents in profits (see chart).
Those familiar with the firm say that
when problems have surfaced, engineers
have been afraid to report them to the
higher-ups, instead continuing to throw
time and money at them. Some analysts
believe the earlier bribery scandal made a
once-entrepreneurial company more inclined to nervous, process-oriented boxticking. Mr Kaeser says that he wants to
turn that around, giving managers “ownership”, rewarding them for reporting problems early while punishing them for letting things get out of control. A fancy new
database by SAP, another German technology firm, will give Siemens executives an
instant look into almost any project the
company is working on. Such transparency is necessary—but not sufficient.
Cultural change is needed if Mr
Kaeser’s reorganisation and portfolio improvements are to do Siemens any good.
The company is not in crisis, as he rightly
said when he took over. But it could clearly
do better. The problem is that what it most
needs to do is the hardest for the boss to decree. The markets gave Mr Kaeser a ninemonth honeymoon in the form of a rising
share price after he became boss, but that is
over. Now they are waiting to see whether
he can make the company run as efficiently as the machines it makes. 7
Herbalife
Shake, rattle ‘n’
roll
NEW YORK
Bill Ackman raises new questions about
the legality of Herbalife’s business
T
HE “death blow” that Bill Ackman
promised to land on Herbalife this
week raised expectations of a dramatic
ending to one of the most remarkable battles in the history of Wall Street. On July
22nd the billionaire boss of Pershing
Square, a hedge fund, delivered a threehour presentation that he said would kill
off the seller of nutritional shakes and
foods by showing it to be a criminal enterprise that preys on the poor. But as he
spoke, Herbalife shares ticked steadily
Ups and downs
ACKMAN PROMISES
ÒDEATH BLOWÓ
SEN. EDWARD
MARKEY CALLS
FOR PROBE
Herbalife’s share price, $
DAVID EINHORN, ACTIVIST
INVESTOR, RAISES QUESTIONS
90
80
70
60
50
40
30
20
BILL ACKMAN’S
ÒPYRAMID SCHEMEÓ
CLAIM
2012
Source: Thomson Reuters
13
14
higher. The low-point for Mr Ackman—
whose fund has reportedly made a $1 billion “short” bet on the company’s share
price falling, was when his father asked
how close he was to proving that Herbalife
is a pyramid scheme. He replied, wearily,
“Dad, if you don’t know it by now...”
Appearing before an audience of nearly
500, plus 10,000 or so viewers online, Mr
Ackman, at times tearful, attacked targets
ranging from Carl Icahn, a rival billionaire
so bullish on Herbalife he has put five directors on its board, to David Beckham and
Lionel Messi, two footballers whose shirts
have borne the firm’s name, Madeleine Albright, a former secretary of state who also
champions it, and PwC, its auditor.
It remains a possibility that Mr Ackman, who first went public with his attack
on Herbalife in December 2012, has delivered a mortal blow of the Shakespearean
kind, deadly in the end but only after much
fighting talk and rolling around. He has
spent $50m on an army of investigators to
look into the firm’s activities around the
world, in particular its “nutrition clubs”
that focus on poorer people. Mr Ackman
says that most of those attending these
clubs are “fictitious customers”.
Who they are goes to the heart of the
matter. If they are genuine retail customers, buying nutritional shakes and other
products because they want to consume
them, that supports Herbalife’s claims to
be a legitimate multi-level marketing company. Neither side disputes that Herbalife’s
main retail channel has a structure in
which participants share in revenues generated by the salespeople they recruit, as
well as revenues generated by the recruits
of those recruits. But Mr Ackman says his
investigations show that the vast majority
of nutrition-club “customers” are people
paying through their consumption of
Herbalife products for training they need
to qualify to open a nutrition club of their
own, in the hope (for most, false hope, he
says) that this will provide a decent living
and perhaps one day make them rich.
Having studied a sample of clubs in
New York, Mr Ackman claims that they
lose $12,000 a year on average, even before
taking into account all their running costs,
and that the accounting system used for
the clubs greatly overstates any income
earned by the self-employed people running them. Herbalife’s own figures show
that barely 7,300 of the almost 409,000
people in its sales channel earned more
than $5,000 in 2013. The company says that
is because the great majority join up to get
a discount on its products rather than to
make money selling them.
Mr Ackman points out that in recent
months, while Herbalife has been carrying
out a share-repurchase programme, some
of its executives have been selling their
shares. In May its boss, Michael Johnson,
sold shares worth $15m. Mr Ackman says 1
Business 55
Online privacy and law enforcement
Unwarranted
Why Microsoft is resisting an official demand to hand over data
L
AWYERS for Microsoft and the American government are due to face each
other in a court in New York on July 31st.
The two sides have been arguing for
months about a warrant, served on
Microsoft in December, which requires
the company to hand over e-mails stored
at data centres in Ireland. Microsoft has
already challenged the warrant once, but
the judge who issued it upheld it.
Microsoft has two main objections to
the warrant, which law-enforcement
officers sought during an investigation
into drug-trafficking. First, it says, an
American warrant cannot be used to
seize evidence held abroad. Second, it
claims that the warrant breaks the constitution’s Fourth Amendment, which
forbids “unreasonable searches and
seizures”, by not specifying where the
evidence is to be taken from. The warrant
refers only to “information…stored at
premises owned, maintained, controlled
or operated by Microsoft”. The company
says the government should get the
information by approaching the Irish
authorities, using a bilateral treaty.
The government calls this absurd. If
Microsoft’s argument stands, it believes,
criminals could put electronic evidence
beyond the long arm of the law simply
by claiming to live outside the United
States. (Microsoft, which has more than
100 data centres in 40 countries, stores
e-mails and other data according to
2 Herbalife bought its own stock during his
presentation to make its price rise.
Herbalife says all of Mr Ackman’s allegations are baseless and that it complies
with all laws. On July 22nd it called his
claim about the nutrition clubs’ earnings
“completely false and fabricated”. It pointed to a study by an economist it hired,
which concluded that 39% of Herbalife’s
sales were to people outside its network
and a further 41% to people who had
joined it mainly so they or their families
could buy the products cheaply, and that
therefore the products “have significant intrinsic value and market demand.”
Mr Ackman called on Herbalife staff to
blow the whistle on any illegal practices
they know of, and reminded its directors
and advisers of the legal risk they would
run were the firm found to be fraudulent.
That is now a question before the Federal
Trade Commission, the Department of Justice, the FBI and at least two state attorneys
general: all ofthem are reportedly conducting investigations into the firm. 7
where users say they live.) The government also says using treaties to seek
information can be slow.
What is more, it argues, Microsoft is
defining a warrant too narrowly. This
matters because the authorities need a
warrant, which requires no prior notice
of seizure, to get hold of unopened emails less than six months old. For older
or opened e-mails, they need only a
subpoena, a notice demanding that
certain items be presented in court. The
original judge agreed, saying that a warrant under the relevant law—the Stored
Communications Act (SCA)—was a “hybrid” of a search warrant and a subpoena. In that case, Microsoft retorts,
why did Congress bother to distinguish
between a warrant and a subpoena
when it drew up the law?
Commerce as well as principle explains Microsoft’s nitpicking—and the
supporting briefs that other American
tech firms have filed in the case. If foreigners fear their data are not safe from
Uncle Sam’s prying eyes in an Americanowned data centre, they may turn to
domestic providers, at American companies’ expense. Such worries have grown
since Edward Snowden’s leaks of American spooks’ activities last year. The tech
firms may also hope a long court battle
will prompt Congress to update the SCA.
The law dates from 1986, when few imagined the internet’s borderless realm.
Microsoft
Cloud lifting
The newish chief executive offers good
intentions but mixed news
N
O ONE could mistake Satya Nadella
for Steve Ballmer, his predecessor as
Microsoft’s boss. The burly Mr Ballmer
brought high-decibel bumptiousness; the
svelte Mr Nadella (pictured) speaks in measured tones and quotes Eliot, Nietzsche
and Rilke in his news conferences and
memos. The new style may in time grate as
much as the old, but so far investors like
what they see. Since Mr Nadella took over
in February, the technology giant’s share
price has climbed by 23%, to nearly $45—
the highest since April 2000, shortly after
Mr Ballmer’s tenure began.
On his first day in the job Mr Nadella
As Nietzsche once said...
said he planned to make Microsoft fit for a
“mobile-first and cloud-first world”. Microsoft, the king of the desktop age, has been
dethroned by the smartphone revolution.
But Mr Nadella thinks the ubiquity of its
software, in both homes and businesses,
still lends it power. On July 22nd he gave
his first proper progress report, in the shape
of Microsoft’s fourth-quarter results.
Those numbers showed that the cloud
part of Mr Nadella’s plan is starting to lift
Microsoft up, but that the mobile side is
weighing it down. The purchase of Nokia’s
mobile-phone division, agreed upon last
year but completed only in April, has worsened the drag. Two months’ worth of the
formerly Finnish phonemaker’s figures
added $2 billion to revenue but subtracted
$692m from operating profit. Total revenue
in the three months to June, at $23.4 billion,
beat analysts’ forecasts; but thanks to Nokia, net income, at $4.6 billion, fell short—
and was less than it was a year before.
Mr Nadella already has plans for the exNokians. On July 17th he said that Microsoft would shed 18,000 of its 127,000 staff,
and that 12,500 would go from their ranks.
Microsoft will focus more on cheaper
smartphones, the fastest-growing bit of the
market, and exclusively on Windows
Phone, its own operating system—which
lags far behind Apple’s iOS and Google’s
Android. An inexpensive range running
on Android, which Nokia unveiled only in
February, will be switched to Windows.
An internal e-mail leaked to tech websites
implied that Nokia’s more basic mobile
phones would be phased out.
On the cloud side, Mr Nadella had
cheerier news. Companies and consumers
are buying more software and services by
online subscription; businesses are doing
more computing in Microsoft’s data cen- 1
56 Business
2 tres (or in their own with Microsoft’s help).
Companies’ spending on cloud services in
the quarter was 147% more than a year before and is running at an annual rate of $4.4
billion. Some other things have also gone
Mr Nadella’s way. Demand for personal
computers (PCs) has bottomed out, as
companies at last replace old machines.
Looking ahead, Mr Nadella is placing a
good deal of faith in what he calls “dual users”: people who use technology both at
work and in their private lives. He believes
that Microsoft can give them the software
they need for both, and has reorganised
some engineers at the company, previously split between consumer and businessto-business units, into single teams.
It matters less to Microsoft than it did
whether that software runs on Windows,
the operating system on which it grew rich
and fat. To be sure, the firm is still pushing
Windows hard, and not only in PCs and its
own phones. It has scrapped royalties for
devices with screens of less than nine inches, to lure other manufacturers. Its executives purr about the Surface Pro 3, the latest
version of its hitherto unsuccessful Windows tablet. But Mr Nadella’s first public
act as boss, in March, was to release its Office software suite for Apple’s iPad. Microsoft can no longer afford to be fussy.
Although Mr Nadella promises a leaner
Microsoft (layers of management will go,
as well as those ex-Nokians), he is not promising a narrower one. He is sticking with
Xbox, its home-entertainment system, although he says it is not “core”. In fact, having added phones, Microsoft is doing more
rather than less. Some think that unwise.
But the shareholders are happy—including, presumably, Mr Ballmer, who owns
more shares than anyone else. 7
German beer
Pure, cheap and a bit dull
BERLIN
Brash Americans plan to froth up Germany’s staid brewing business
T
HE dirndl-clad waitress bringing huge
mugs to Lederhosen-wearing revellers
at Oktoberfest is an image that, like none
other, shows how central beer is to German culture. The national brewers’ association declares Germany “European Champion”. It brewed 94.4m hectolitres last year,
beaten only by China, America and Brazil.
But the truth is that Germans are going
off their ale. At unification in 1990, annual
consumption averaged 148 litres per head;
last year it was just 107 litres. Instead, they
are turning to wine, which has a higher status. Connoisseurs think there is another
reason for falling sales: that so many German beers are bland and indistinguishable. The country has many tiny breweries
whose ales can only be had locally. Some,
like the smoked beers of Bamberg in Franconia, are distinctive. But many of the
small fry competently but predictably turn
out a narrow range of flavours.
Rory Lawton, an Irish beer expert in
Berlin, thinks Germany’s Reinheitsgebot, or
beer-purity law, is discouraging innovation. The 1516 law was intended to make it
easier to tax beer, through levies on its permitted ingredients: malted barley, hops,
water and, later, yeast. Centuries on, brewers began using the Reinheitsgebot as a marketing tool to promote their products as
pure and authentic. If anything else is put
into a brew made in Germany it cannot be
called Bier, but must be labelled “alcoholic
malt drink”.
Today, the link between quality and the
purity law seems strange outside German
brewing circles, since the restriction on experimenting with ingredients has meant
that the country has largely missed out on
the American-led “craft beer” craze. Germany’s beer exports have been flat since
2007, whereas imports of more varied foreign beers have climbed. In America, consumption of the watery swill that passes
for beer is falling, but the trade body for
craft brewers reckons their sales rose by
17.2% in 2013. Two of Germany’s small
neighbours, Belgium and Denmark, are
Quality, quantity but not much variety
also turning out exciting new brews.
Heiner Müller of Paulaner, the Munichbased maker of Germany’s most popular
Hefeweizen (cloudy, wheaty beer), argues
that the Reinheitsgebot is needed because
German consumers expect it. It need not
be an obstacle to diversity: the varieties of
hops, malt, yeast and other factors like temperature could produce over a billion
beers, he says. But German brewers have
largely stuck to a few traditional styles. For
instance, it is hard to find porters and
stouts, or the hoppy, high-alcohol brews
now popular on America’s west coast.
Greg Koch hopes to change all this. His
Stone Brewing is America’s tenth-biggest
craft brewer, with sales last year of $137m.
On July 19th it said it will invest $25m in a
new brewery and restaurant in Berlin—the
first brewery in Europe to be owned and
run by an American craft brewer. Can
Stone convince German palates to adapt to
flavours like its Sublimely Self-Righteous
Black IPA? Mr Koch says he did the same
amount of market research he had done
previously in America: “Zero.” He quotes
Steve Jobs, Apple’s late boss, to the effect
that customers do not know what they
want until you show it to them.
If Stone succeeds, it may be no bad
thing for the German brewers. They are under price pressure—beer is often cheaper
than bottled water. (In January five big
brewers were fined for trying to boost
prices with a cartel.) Innovation could
tempt back middle-aged, status-conscious
drinkers, and get them to pay more for
something new, through a link to fine dining. Many American restaurants, and ones
elsewhere in Europe, have as many beers
as wines on their menus. For Germans to
learn lessons about beer from their neighbours and the Americans will be galling.
But it might be better than hoping that the
Reinheitsgebot, soon to turn 500 years old,
will prop up German beer sales forever. 7
Business 57
Schumpeter Unplugged and unproductive
Chinese business has been slow to embrace the internet. As it does, productivity should soar
A
T FIRST glance it would appear that China has gone online,
and gone digital, with great gusto. The spectacular rise of
internet stars such as Alibaba, Tencent and JD would certainly
suggest so. The country now has more smartphone users and
households with internet access than any other. Its e-commerce
industry, which turned over $300 billion last year, is the world’s
biggest. The forthcoming stockmarket flotation of Alibaba may
be the largest yet seen.
So it is perhaps surprising to hear it argued that much of Chinese business has still not plugged in to the internet and to related
trends such as cloud computing and “big data” analysis; and
therefore that these technologies’ biggest impact on the country’s
economy is still to come. That is the conclusion of a report published on July 24th by the McKinsey Global Institute (MGI), a
think-tank run by the eponymous consulting firm. It finds that
only one-fifth ofChinese firms are using cloud-based data storage
and processing power, for example, compared with three-fifths
of American ones. Chinese businesses spend only 2% of their revenues on information technology, half the global average. Even
the biggest, most prestigious state enterprises, such as Sinopec
and PetroChina, two oil giants, are skimping on IT. Much of the
benefit that the internet can bring in such areas as marketing,
managing supply chains and collaborative research is passing
such firms by, the people from McKinsey conclude.
The country’s labour productivity has increased by a quarter
since 2010, but that was largely due to heavy capital spending that
resulted from an unsustainable fiscal stimulus. In fact much of
Chinese industry (save exporters, which by their nature must
compete with efficient foreign rivals) is still inefficient, for a variety of reasons—not least bureaucracy, official meddling and the
coddling of favoured firms with subsidies. The MGI report argues
that a failure to get online and go digital is another big factor.
Although millions of Chinese businesses sell their products
on Taobao, an online marketplace owned by Alibaba, vast numbers remain offline: only 20-25% of small firms in China are internet-connected, compared with 75% in America. This helps explain why the labour productivity of local small businesses is
roughly two-thirds of the average for all firms in the country; the
comparable figure in Britain is 90% and in Brazil it is 95%.
However, the upside to all this is that as Chinese firms of all
sizes get themselves plugged in, as they are belatedly doing, there
should be a burst of productivity gains, providing a sustained
boost to GDP growth. The dwindling supply of cheap labour will
be less of a worry for China, and its economy will be driven more
by innovation and consumption. As the internet injects competition and price transparency, dominant firms will suffer an erosion of profit margins, forcing them to look to new technologies
to restore their fortunes. In all, MGI predicts that “a great wave of
disruption has just begun.”
In each part of Chinese industry there are marked differences
between the most and least connected firms. Among carmakers,
for example, some are using real-time data feeds to optimise their
supply chains and transport, helping them turn over their stocks
five times as quickly as the laggards. With 10m searches each day
by potential car buyers on Baidu (a local equivalent to Google),
there is much scope for cutting marketing and sales costs. Foreign
carmakers such as Volkswagen are already selling cars directly to
Chinese motorists on their websites and on Tmall, an e-commerce site. Building internet connectivity into the cars themselves, as GM has done with its OnStar service, means dealers can
check faults remotely and send maintenance alerts to drivers, cutting costs and satisfying customers.
The digital revolution can help in several ways. Because publicly owned banks have directed credit to favoured state firms,
bamboo capitalists have long been starved of capital. Now,
though, Alibaba and Tencent are disrupting the market by offering microloans to businesses online. Their payment systems let
even tiny firms become multinationals. Yougang Chen, one of
the authors of the MGI report, predicts that the web will also help
millions of small entrepreneurs across the country collaborate,
producing a powerful network effect that boosts productivity.
The staid state
Could the internet also work wonders in the state-owned sector?
China’s publicly owned businesses are typically its least efficient;
the gap between their returns on assets and those of private firms
has been widening. Recognising this, the government this month
launched a modest reform effort, involving partial privatisation
and minor corporate-governance reforms. CITIC, a rambling
state conglomerate, recently injected the parent company’s Chinese businesses into a division listed in Hong Kong, hoping that
by putting them under closer scrutiny by investors it will force
them to shape up.
Such moves could prompt state firms to speed up their entry
into the digital age. That said, many such half-hearted reforms
have flopped over the past two decades, so scepticism is in order.
And there is only so much that technology can do to enhance a
firm’s efficiency if its management is dysfunctional. A study by
EY, another consulting firm, asked managers in China what were
the main obstacles to increasing productivity. The most common
answers were not about a lack of technology, but were related to
cultural barriers and incentives, such as “unclear accountability”
and “overly centralised control from headquarters”. Nowhere are
these problems more apparent than at publicly owned companies. For all Chinese business stands to gain from the internet, digitisation, cloud computing and big data, the state firms’ problems
will not be fixed without bolder reforms. 7
Economist.com/blogs/schumpeter
Finance and economics
60 Buttonwood: Politics and investment
61 New accounting rules for banks
61 The Big Mac index
62 Transparency at the Fed
62 Reforming money-market funds
63 Free exchange: The real cost of
renewable power
For daily analysis and debate on economics, visit
Economist.com/economics
China and Asia
Winners and losers in the great
Chinese rebalancing
JAMBI PROVINCE, INDONESIA
Slowing investment and resilient consumption in China are changing Asia’s
economic order
N
EAR the centre of Sumatra, an Indonesian island once blanketed by forest, a
gash in the ground reveals the wealth that
lies just beneath its surface. Large yellow
diggers prise out coal and tip it into 60tonne lorries that huff their way to the top
of the open-cast mine in Pauh subdistrict.
Five years of constant traffic, propelled by
China’s hunger for fuel, has formed deep
ruts in the dirt road. Recently, however, the
lorries have stopped moving at midday.
China’s appetite for coal has plateaued, the
coal price has sagged and Minemex, the
firm that operates the mine, has given
workers longer lunch breaks, without pay.
“We have no choice. We must endure,”
sighs Demak, a sun-weathered 38-year-old.
Enduring might seem an apt word for
Asian economies that had come to rely on
ever-stronger exports to China. After averaging 10% annual growth for 30 years, the
Chinese economy has managed only 7.5%
over the past two years—enviable for most
countries but a clear downshift for China.
The lull has rippled through the region. Taiwanese machine-tool makers have seen
exports to China fall by more than 20%
since 2012. Australian iron ore for delivery
to China recently hit its lowest price in 21
months. Jewellery sales in Hong Kong
have fallen by 40% this year, in part due to
China’s crackdown on corruption.
But enduring is not the right word for all
those doing business with China. Analysts
refer to milk as New Zealand’s “white
gold”, such is China’s thirst for it. The number of Chinese visitors to Sri Lanka more
than doubled in the first half of the year.
Chinese women in their 30s are now the
biggest group offoreign buyers on the website of Lotte, a big South Korean retailer,
snapping up cosmetics.
These contrasting fortunes stem from
profound, if gradual, changes to Chinese
growth. Consumption is at last edging out
investment as the economy’s main engine.
Household consumption has been inching
up of late as a proportion of GDP, rising
Coal and condoms
Domestic value-added in exports to China
As % of GDP, 2009, selected Asian economies
0
1
2
3
4
5
6
Taiwan
22
Malaysia
11
Singapore
8
South Korea
35
Hong Kong
9
Thailand
10
Australia
31
Philippines
3
Indonesia
10
Japan
Source: OECD
Value-added,
$bn
72
from 34.9% in 2010 to 36.2% last year, according to official data. Some economists
think the true share could be ten percentage points higher. This year even with the
government’s “mini-stimulus”—a burst of
spending on railways and public housing
unveiled in April—consumption has still
accounted for over half of Chinese growth.
Limited though it has been, this rebalancing is beginning to make itself felt beyond China’s borders. First, there is the
question of what China buys. With $1.95
trillion in imports in 2013, it is the world’s
second-biggest importing nation, behind
only America (although almost half of
those imports are parts that are assembled
and re-exported). Taiwan is more exposed
to China’s appetites than any other Asian
economy, with sales to China constituting
about 6% of its GDP (see chart). But many
of its exports, such as mobile phones, are
geared towards consumption rather than
investment. These are still faring well: Taiwan’s export orders to China were up by
15% in June from a year earlier.
More at risk are those that mainly export commodities and capital goods such
as heavy machinery to China. The most exposed is Australia, which could lose about
0.8 percentage points of growth if Chinese
investment slows to a crawl, according to
Capital Economics, a consulting firm. That
has not yet happened, but the fading of
Australia’s mining boom has sent unemployment to a decade-high of 6%, hinting
at its vulnerability.
Even those countries that do not export
much to China will feel the effects of its rebalancing via commodity markets. More
tepid Chinese demand means lower prices
for many raw materials: witness the nearly
50% fall in Indonesian coal prices since
2011. Compounding the impact of China’s
slowdown are government measures to 1
60 Finance and economics
2 steer power companies away from the
cheapest, most-polluting coal, like that
found in Pauh. “You can’t make money
mining that coal anymore unless you’re located next to the coastline where you can
bring it to ships,” says Gatut Adisoma of
the Indonesian Coal Mining Association.
But it is not all gloom for commodities.
Metals that are used mainly in consumer
goods, such as zinc, much of which goes
into cars, are outpacing those tied to China’s old growth model such as iron ore, the
precursor to all the steel in China’s vast
housing developments. And the pain of
commodity producers spells relief for their
customers. Most Asian economies from
South Korea to Thailand are big importers
of metals and energy. If Narendra Modi, India’s prime minister, is to kick-start spending on infrastructure, weaker investment
in China forms a propitious backdrop.
Across the Strait of Malacca from the
coalmines of Pauh, Karex, a Malaysian firm
that is the world’s biggest producer of condoms, has been boosted both by the shifting composition of China’s imports and by
the resulting movement in commodity
prices. Condom use tends to track consumption more broadly, growing along
with urbanisation, income and education,
as well as leisure time. Chinese condom
imports almost tripled from 2007 to 2013,
to 3.4m kg. Meanwhile, the price of their
main ingredient, rubber, has nearly halved
since 2011 thanks to plunging demand for
supersized tyres from the mining and construction industries. As whirring glass
tubes dip into latex baths, Goh Miah Kiat,
Karex’s CEO, expresses optimism about
China, currently just a tenth or so of its
sales. “There’s a perception that imports
are better than local products,” he says.
From condoms to milk and cars, it is a bias
that augurs well for countries that make
what Chinese shoppers want to buy. 7
Buttonwood Trillion-dollar boo-boo
Bad governments cost investors a fortune
O
NE trillion dollars. That may be the
cost to Russian investors of Vladimir
Putin’s rule. It is the equivalent of about
$7,000 for every Russian citizen.
The calculation stems from the fact
that investors regard Russian assets with
suspicion. As a result, Russian stocks trade
on a huge discount to much of the rest of
the world, with an average price-earnings
ratio (p/e) of just 5.2. At present, the Russian market has a total value of $735 billion. If it traded on the same p/e as the average emerging market (12.5), it would be
worth around $1.77 trillion.
Not all of this discount is down to the
actions of the Russian government. But it
is probably responsible for the bulk of it.
Investors have been nervous about corporate governance in Russia, thanks to a
series of high-profile incidents such as the
jailing of Mikhail Khodorkovsky, an oil
magnate who fell out with Mr Putin, the
expulsion of William Browder, a hedgefund manager who campaigned against
corruption, and the trouble faced by oil
companies such as BP and Shell in dealing with local partners. All those events
occurred well before Russia’s annexation
of Crimea and its backing of separatists in
eastern Ukraine, steps that have
prompted Western sanctions.
Most Russian citizens will not notice
the problem since they do not own stocks
individually or collectively, in the form of
pension schemes and mutual funds. (By
itself, one might argue, this is an indictment of the regime.) But it will hurt the
many oligarchs who are close to Mr Putin.
And for the broader population, the result
is a lack of foreign investment (and capital
flight abroad) that must be contributing to
the country’s poor growth: its GDP fell by
0.4% in the first quarter.
From time to time, analysts point to
the low Russian valuation as a sign that
In the DOG house
Stockmarket price-earnings ratios
15
Emerging-markets average
12
Zimbabwe
9
Iran
6
Russia
Argentina
2011
12
13
14
3
0
Sources: Thomson Reuters; MSCI; Tehran Stock Exchange
the market is cheap and that international
investors should go on a buying spree. But
such calls tend to be swiftly followed by
new evidence of the Putin regime’s caprice, prompting further disillusionment.
The low rating of the market has been remarkably persistent (see chart).
At the global level, investors have
learned to shrug off geopolitical risk. Ever
since the first Gulf war of 1991, when markets rallied as soon as the fighting started,
the pattern has been the same. Markets
may wobble for a few days over wars, or
rumours of wars. But no recent crisis has
resulted in anything more than a regional
conflict, nor has any resulted in the kind of
economic disruption that occurred in the
1970s, when soaring oil prices fostered stagflation. Indeed, investors seem to have
great faith that most problems can be
solved by central banks, either in the form
of near-zero interest rates or bond-buying
programmes.
Yet the same is not true at the level of individual countries, where political risk still
clearly applies. Several other countries
show evidence of what might be dubbed
the “DOG factor”: a discount for obnoxious
governments. Iran, like Russia a target of
Western sanctions, trades on a p/e of just
5.6 and has a total stockmarket value of
$131 billion; were it to be rated on a par
with the average emerging market, its
market value would be $292 billion, so its
DOG factor is $161 billion or 55%.
Argentina’s government has manipulated its inflation rate, defaulted on its
debt back in 2001 and, thanks to the legal
battle that ensued, may do so again in a
few days’ time. Its stockmarket trades on a
price-earnings ratio of 6.1. As a result, its
total value is $56 billion, rather than the
$115 billion it might have commanded (a
DOG factor of 51%). After its hyperinflationary episode last decade, Zimbabwe’s
rating has recovered a bit, although it still
lags the emerging-market average.
The stockmarket is not the only way
that investors penalise untrustworthy
governments; Argentina’s 20-year bonds
yield 9.8%, more than five percentage
points above the yield on the equivalent
Mexican bonds. (Russia cancelled a bond
auction this week, citing “market conditions”.) The more the government spends
on interest, the more it has to tax its citizens and the less money it has available to
spend on services. The bond-market vigilantes may have been neutered in the developed world by central banks and their
quantitative-easing programmes, but
they are still capable of inflicting damage
in emerging markets.
Many people in the affected countries
see these discounts as proof of Western
bias or a sign of the malign impact of international capitalism. But the acid test is
what they would do with their own money: would they trust their government
enough to keep it at home, or would they
rather send it abroad?
Economist.com/blogs/buttonwood
Accounting rules for banks
Freedom to fudge
Finance and economics 61
The Big Mac index
A basket of sliders
Our flame-grilled guide to currencies suggests the dollar is getting dearer
New York
The standard-setters are giving banks
more latitude to write down loans
F
OR nearly a decade Spain has resisted
the received wisdom, and European
regulations, on accounting. In 2005 the
European Union required all of its members to adopt IFRS, the dominant accounting standard outside America. One of the
biggest changes between the new rules
and many of the national guidelines that
preceded them was a ban on banks writing
down the value of their loans in anticipation of future losses, a practice some had
abused to disguise volatility in their earnings. Instead, IFRS imposed a strict “incurred-loss” method, in which debt was
valued at par until a borrower actually
stopped paying.
While nodding at the new rules, Spain
in practice retained its old ones. Its banks,
more than those of any other European
country, had tended to wait until the last
possible moment to recognise bad loans,
amplifying the ups and downs ofthe credit
cycle. Its central bank was therefore keen
on the sort of smoothing of losses that IFRS
was trying to eliminate: in 2000 it had
forced banks to adopt “dynamic provisioning”, making bigger writedowns in boom
times and smaller in bad.
The financial crisis tested both systems,
and revealed flaws in each. Because banks
elsewhere in Europe could not write down
their loans based on the deteriorating economic environment, their quarterly results
failed to reflect the full horror to come, to
investors’ cost. In contrast, Spanish banks
had been forced to make extra provisions
during the good years, and so weathered
the collapse of Lehman Brothers relatively
well. In 2009 Britain’s Financial Services
Authority recommended changing IFRS to
follow Spain’s lead.
However, the provisions required under the Spanish system were based on historical averages, in effect assuming that all
downturns would be of a similar scale.
When the euro crisis dealt Spain a second
blow in 2010, the banks’ buffers had already been depleted. Many went bust.
With these lessons in mind, the International Accounting Standards Board (IASB),
which oversees IFRS, this week issued revised rules. It has replaced the incurredloss method with an “expected-loss” approach similar to Spain’s. But rather than
adjusting loan-loss provisions by a fixed
proportion on the basis of past economic
cycles, the new standard lets the banks determine how much to write off. They will
take an immediate charge when making a1
C
OUNTRIES with McDonald’s fastfood restaurants may only rarely
become embroiled in military conflict
(Russia and Ukraine are obvious exceptions at the moment), but currency wars
are another matter. In recent years central
banks in many rich economies fired up
big bond-buying schemes to put some
sizzle into economies that had only recently emerged from a deep freeze.
Emerging-market governments complained that the capital that flowed their
way as a result was hard to digest. Meanwhile Americans griped that China was
serving up an undercooked yuan. Burgernomics provides one way to keep
track of the food fight.
Our Big Mac index is based on the
theory of purchasing-power parity. It
says that in the long run exchange rates
ought to adjust so that a basket of goods
and services costs the same across countries. Our basket contains just one item, a
Big Mac (except in India, where we substitute the Maharaja Mac, a chicken
sandwich). Since a Big Mac costs 48
kroner ($7.76) in Norway and only $4.80
in America, the kroner is overvalued by
62% according to this lighthearted, pro-
The Big Mac index
Local currency under(-)/over(+) valuation
against the dollar, %
Big Mac price*, $
July 2009
July 2014
75 50 25 – 0 + 25 50 75
Norway
7.76
Switzerland
6.83
Brazil
5.86
Canada
5.25
Euro area†
4.95
Britain
4.93
Australia
4.81
United States‡
4.80
Turkey
4.42
Japan
3.64
China§
2.73
Russia
2.55
Indonesia
2.43
South Africa
2.33
India**
1.75
Ukraine
1.63
*At market exchange rates (July 23rd 2014) †Weighted
average of member countries ‡Average of four cities
**Maharaja Mac, added July 2011
Sources: McDonald’s; The Economist
§Average of five cities
Interactive: Compare global currencies over time
with our Big Mac index at Economist.com/bigmac
tein-rich analysis, making it the most
puffed-up currency in the index. The
same burger costs just $1.63 in Ukraine, by
contrast, making the hryvnia the feeblest
currency of the bunch.
The latest dispatch from the world of
burgernomics suggests that despite the
Federal Reserve’s best efforts, the dollar
has been fattening up. The average valuation of the currencies in our index
(weighted by GDP) has moved from
roughly neutral in 2009 to about 15%
undervalued against the dollar this year.
Crises of various sorts are partly to
blame. Political turmoil is depressing the
hryvnia. And quite a lot of the dollar’s
relative appreciation can be linked to the
woes of the euro area.
Flailing French firms may fret about
the “crazy euro” but there is little to justify
their beef; the euro is near fair value now,
down from overvaluation of as much as
50% in 2008. Nordic currencies that
looked wildly overvalued by our greasy
metric fell closer to fair value during the
worst years of the euro crisis—to the relief
of Swedish and Danish exporters. Despite its recent rise sterling also remains
below its hearty level of six years ago,
and is now close to fair value.
Some central banks have helped their
currencies slim down. The Swiss franc’s
decline is thanks in part to the Swiss
National Bank. It put a styrofoam lid on
the franc’s value when capital began
flowing in from panicked European
investors, lest the rising cost of Swiss
exports abroad drive Switzerland into
recession. The Bank of Japan has also
taken a bite out of the yen’s value. Its
generous portion of quantitative easing
has helped push the currency down from
close to fair value to 24% below it.
The Chinese yuan, once the most
undercooked currency in the index, is
now only the 12th-most-undervalued,
thanks to slow but steady appreciation in
recent years. Yet because China’s economy has grown so quickly, it has piled on
weight in the index, helping to push the
average undervaluation even lower.
It is not on the whole surprising that
currencies globally are looking a bit less
supersized. A healthier American economy and reduced asset purchases by the
Federal Reserve are a recipe for a stronger
dollar. But American firms need to maintain their competitiveness. History suggests that even when Fed tightening is
well done, it is rare that global credit
conditions shift without a little scorching.
62 Finance and economics
2 loan for any losses they forecast over the
next year. If the odds of repayment subsequently fall substantially, the lender must
register a new write-down for the probable
losses over the loan’s entire lifetime. The
new system is scheduled to take effect in
2018. The American counterpart to the
IASB is working on a similar rule.
In the short term, affected banks will focus on setting up computer systems to generate the necessary loss estimates, and on
determining how the change will affect
their compliance with financial regulation.
According to a recent survey by Deloitte, a
big accounting firm, the new method is expected to increase loan-loss provisions by
around half. That could force some banks,
already struggling to comply with the
stricter capital requirements imposed
since the crisis, to raise even more money.
But in the long run banks may try to
twist the system to their benefit. The new
standard does require them to back up
their accounting choices with much more
evidence than the pre-IFRS rules did.
Nonetheless, it still gives them broad leeway to decide when a loan is looking parlous enough to register an expected loss.
Predicting the magnitude of losses is also a
subjective matter. Since the crisis regulators have generally given bankers less discretion to interpret the rules, not more. 7
Money-market funds
Faking the buck
$trn
New York
3
America sets new rules for a common
short-term investment
2
I
1
T IS a huge investment class: a $2.8 trillion
one, to be exact. And it had long been
thought of as a mundane one, just a notch
more adventurous than a current account.
Yet writing new rules for America’s money-market funds, which invest in shortterm commercial and government debt,
has been “one of the most flawed and controversial” deliberations ever undertaken
by the Securities and Exchange Commission (SEC), Wall Street’s main regulator, according to Luis Aguilar, the only one of the
five commissioners in office throughout
the process.
By a 3-2 vote on July 23rd, the SEC at last
approved two big changes. The first allowed funds to impose fees on redemptions or suspend them for up to ten days to
prevent runs. The second requires that the
most volatile funds, which cater to institutions and invest in corporate debt, disclose
the value of a share to a fraction of a penny.
More data, less gumption
Publishing details of the Fed’s internal debates seems to stifle them
HE Federal Reserve is “the most transparent central bank to my knowledge
in the world,” claims its chairwoman,
Janet Yellen. Transparency is a commonly
prescribed remedy for all manner of
governmental failings. But is it always
beneficial? A recent paper* suggests that
greater openness may turn central bankers into politicians, who show off their
knowledge of economic data but are
timid about recommending policy.
The paper uses a natural experiment
involving meetings of the Federal Open
Markets Committee (FOMC), the panel
that sets interest rates. In 1993 the Fed,
pressed by Congress to make its proceedings less opaque, not only promised to
publish transcripts of the FOMC’s future
meetings, but also opened up its archive.
Transcripts of earlier meetings had never
been intended for public release; members of the FOMC were not even aware
that such records had been retained.
The transcripts before 1993 display an
FOMC unburdened by the knowledge
that their deliberations would one day be
on the record. Conversely, from 1993 all
participants knew that their input would
US money-market funds, assets under management
4
Transparency and central banking
T
Rounding down
eventually be made public. The new
study compares the two periods to see
what impact the new transparency had.
Using a linguistic algorithm, the authors identify discussions of economic
policy (as opposed to administrative
matters, say) and analyse how they
changed after1993. Newer members in
particular did behave differently, talking
more about economic issues and citing
more data when doing so—suggesting
that the increased transparency had
induced them to mug up on their briefing
notes. But the publication of transcripts
also seemed to inhibit policy discussions.
Less experienced members asked fewer
questions, made fewer statements and
were more likely to follow the chairman’s lead. That, the authors assume, is
because they were unsure of themselves,
and did not want to advocate policies
that might later backfire. A committee can
be too open, it seems.
...............................................................
* “Transparency and deliberation within the FOMC: a
computational linguistics approach”, by Stephen
Hansen, Michael McMahon and Andrea Prat. Centre for
Macroeconomics Working Paper. May 2014.
2000 02
04
06
08
10
Source: Investment Company Institute
12
14*
0
*As of July 16th
The second change is more important
than it sounds. By convention, moneymarket funds are priced at a steady dollar a
share; changes in value are reflected only
in the interest they pay. Variations in the
value of the underlying assets are small because they mature in a matter of days, but
they do occur. In the past, that has been
hidden by tiny amounts of rounding.
Though this ruse will now be banned for
some funds, those that cater to individual
investors will still be allowed to use it.
That matters, since the fixed value contributed to the impression that moneymarket funds offered the safety of bank deposits with higher returns. In September
2008 that notion was punctured when the
Reserve Fund, which had a little over 1% of
its assets invested in debt issued by Lehman Brothers, was forced by the investment bank’s collapse to “break the buck”:
reveal a decline in the value of its shares to
slightly less than $1. That sparked panicked
redemptions at it and other funds.
The panic, in turn, crunched credit for
firms that relied on short-term debt and
fanned fears of a systemic meltdown. In response, the Treasury provided temporary
guarantees for money-market funds, now
lapsed. In 2010 and again in 2012 the SEC
tightened restrictions on the kinds of securities funds could buy. But it rejected a plan
to require funds to hold buffers of capital
like banks, for fear it would further dent a
battered business (see chart).
Mary Jo White, the SEC’s chairwoman,
says the new rules will “protect investors
and the financial system in a crisis.” But the
two dissenting commissioners fear they
may do more harm than good. Allowing
funds to suspend redemptions may actually spark runs, as investors rush to pre-empt
any curbs, argues one of them. The other
worries that the changes will divert the
gullible to even more misleading investments, notably “stable value” funds. These
cater to much the same niche as moneymarket funds and, despite their name, offer
no guarantees. Rather than trying to protect investors from risk, the SEC might do
better to ensure that the risks they are running are clearly disclosed. 7
Finance and economics 63
Free exchange Sun, wind and drain
Wind and solar power are even more expensive than is commonly thought
S
UBSIDIES for renewable energy are one of the most contested
areas of public policy. Billions are spent nursing the infant solar- and wind-power industries in the hope that they will one day
undercut fossil fuels and drastically reduce the amount of carbon
dioxide being put into the atmosphere. The idea seems to be
working. Photovoltaic panels have halved in price since 2008
and the capital cost of a solar-power plant—of which panels account for slightly under half—fell by 22% in 2010-13. In a few sunny
places, solar power is providing electricity to the grid as cheaply
as conventional coal- or gas-fired power plants.
But whereas the cost of a solar panel is easy to calculate, the
cost of electricity is harder to assess. It depends not only on the
fuel used, but also on the cost of capital (power plants take years
to build and last for decades), how much of the time a plant operates, and whether it generates power at times of peak demand. To
take account of all this, economists use “levelised costs”—the net
present value of all costs (capital and operating) of a generating
unit over its life cycle, divided by the number of megawatt-hours
of electricity it is expected to supply.
The trouble, as Paul Joskow of the Massachusetts Institute of
Technology has pointed out, is that levelised costs do not take account of the costs of intermittency.* Wind power is not generated
on a calm day, nor solar power at night, so conventional power
plants must be kept on standby—but are not included in the levelised cost of renewables. Electricity demand also varies during
the day in ways that the supply from wind and solar generation
may not match, so even if renewable forms of energy have the
same levelised cost as conventional ones, the value of the power
they produce may be lower. In short, levelised costs are poor at
comparing different forms of power generation.
To get around that problem Charles Frank of the Brookings Institution, a think-tank, uses a cost-benefit analysis to rank various
forms of energy. The costs include those of building and running
power plants, and those associated with particular technologies,
such as balancing the electricity system when wind or solar
plants go offline or disposing of spent nuclear-fuel rods. The
benefits of renewable energy include the value of the fuel that
would have been used if coal- or gas-fired plants had produced
the same amount of electricity and the amount of carbon-dioxide emissions that they avoid. The table summarises these costs
and benefits. It makes wind and solar power lookfar more expensive than they appear on the basis of levelised costs.
Gas not wind
Net costs and benefits per year per MW compared with coal baseload generation
United States, $’000
Costs
New emissions
New energy costs
Capacity costs
750
500
Other
Net cost
or benefit
250 – 0 + 250
Wind
Solar
Benefits
Avoided emissions
Avoided energy costs
Avoided capacity costs
500
750
1,000
-25
1,250
-,188
180
Hydro
Nuclear
Gas*
Source: Brookings Institution
319
535
*Combined cycle
Mr Frank took four sorts of zero-carbon energy (solar, wind,
hydroelectric and nuclear), plus a low-carbon sort (an especially
efficient type of gas-burning plant), and compared them with various sorts of conventional power. Obviously, low- and no-carbon power plants do not avoid emissions when they are not
working, though they do incur some costs. So nuclear-power
plants, which run at about 90% of capacity, avoid almost four
times as much CO2 per unit of capacity as do wind turbines,
which run at about 25%; they avoid six times as much as solar arrays do. If you assume a carbon price of $50 a tonne—way over
most actual prices—nuclear energy avoids over $400,000-worth
of carbon emissions per megawatt (MW) of capacity, compared
with only $69,500 for solar and $107,000 for wind.
Nuclear power plants, however, are vastly expensive. A new
plant at Hinkley Point, in south-west England, for example, is likely to cost at least $27 billion. They are also uninsurable commercially. Yet the fact that they run around the clock makes them only
75% more expensive to build and run per MW of capacity than a
solar-power plant, Mr Frank reckons.
To determine the overall cost or benefit, though, the cost of the
fossil-fuel plants that have to be kept hanging around for the
times when solar and wind plants stand idle must also be factored in. Mr Frank calls these “avoided capacity costs”—costs that
would not have been incurred had the green-energy plants not
been built. Thus a 1MW wind farm running at about 25% of capacity can replace only about 0.23MW of a coal plant running at 90%
of capacity. Solar farms run at only about 15% of capacity, so they
can replace even less. Seven solar plants or four wind farms
would thus be needed to produce the same amount of electricity
over time as a similar-sized coal-fired plant. And all that extra solar and wind capacity is expensive.
A levelised playing field
If all the costs and benefits are totted up using Mr Frank’s calculation, solar power is by far the most expensive way ofreducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower
provides a modest net benefit. But the most cost-effective zeroemission technology is nuclear power. The pattern is similar if
1MW of gas-fired capacity is displaced instead of coal. And all this
assumes a carbon price of $50 a tonne. Using actual carbon prices
(below $10 in Europe) makes solar and wind look even worse.
The carbon price would have to rise to $185 a tonne before solar
power shows a net benefit.
There are, of course, all sorts of reasons to choose one form of
energy over another, including emissions of pollutants other
than CO2 and fear of nuclear accidents. Mr Frank does not look at
these. Still, his findings have profound policy implications. At the
moment, most rich countries and China subsidise solar and
wind power to help stem climate change. Yet this is the most expensive way of reducing greenhouse-gas emissions. Meanwhile
Germany and Japan, among others, are mothballing nuclear
plants, which (in terms of carbon abatement) are cheaper. The
implication of Mr Frank’s research is clear: governments should
target emissions reductions from any source rather than focus on
boosting certain kinds of renewable energy. 7
.................................................................................................
*Studies cited in this article can be found at www.economist.com/renewables14
Economist.com/blogs/freeexchange
64
Science and technology
66 Schizophrenia and genetics
For daily analysis and debate on science and
technology, visit
Economist.com/science
The 20th International AIDS Conference
Is the end in sight?
MELBOURNE
Campaigners are now talking openly of beating the AIDS epidemic
T
ARGETS, students of management
agree, help achieve goals. The best are
demanding but realistic. And that is something those in charge of the fight against
AIDS have come to realise. Their latest target, by far their most ambitious, is to end
the epidemic by 2030. “End” is an elastic
term, since there is no cure for HIV infection, nor is one in sight. But optimists think
a combination of the tools available—particularly the antiretroviral (ARV) drugs
which now keep around 13m people
alive—could be enough to stop the virus
spreading. In the parlance of epidemiologists, they believe they can arrive at R0<1. In
layman’s terms, that means each infected
individual, during the course of his or her
lifetime, will pass the infection on to less
than one person on average.
That would be a stunning achievement.
HIV was unknown to science a mere 33
years ago. A combination of scientific research and political willpower has got the
virus on the run. According to calculations
by UNAIDS, the United Nations agency
created to deal with the disease, 1.5m people died of it last year. That is down from a
peak of 2.4m in 2005 (see chart on next
page). The rate of new infections has been
falling for longer.
To arrive at a point in 2030 where the
rate of new infections is negligible is an
ambitious aim, but not a foolish one. The
tools to achieve it exist, and those at the
20th International AIDS Conference, held
this week in Melbourne, are sharpening
them. Sadly, though, six delegates on their
way to the conference were killed when
flight MH17 was shot down over eastern
Ukraine on July 17th. One of those delegates was Joep Lange, a former president of
the International AIDS Society (see obituary). But their work goes on.
Transmission break
As Salim Abdool Karim, head of the Centre
for the AIDS Programme of Research, in
South Africa, told delegates, many ways
are now available to prevent HIV’s transmission—from counselling and condoms
to drugs and circumcision (which cuts
away a piece of the penis called the foreskin that is rich in cells susceptible to HIV
infection). One of the most effective of
these is, fortuitously, a side-effect of ARV
treatment. This reduces the level of the virus in people’s bodies so much that it stops
them infecting others, a phenomenon
known as “treatment as prevention”.
A study published three years ago
showed that treatment as prevention
works—at least in the case of cohabiting
couples where only one partner is infected. The likelihood of passing on the virus
in these circumstances was reduced by
96%. How effective treatment as prevention is in the rough and tumble of wider
human life was not so clear at that time, but
research published earlier this year by a
group at the University of KwaZulu-Natal,
in South Africa, shows that uninfected
people living in areas where 30-40% of
those infected are on ARVs are 38% less
likely to succumb than those in places
where ARV coverage is less than 10%.
Drugs are also emerging as a way for
those who think they are at risk to protect
themselves. Such “pre-exposure prophylaxis” has been talked of for a long time. It
is now actually happening, thanks to the
discovery that a medicine called Truvada
(a combination of tenofovir and emtricitabine) can be used this way.
Robert Grant of the University of California, San Francisco, who led the original
trial of Truvada’s prophylactic powers, told
the meeting of follow-up research at11 sites
on four continents. His new study, like his
original one, looked mainly at gay men. It
confirmed that Truvada does indeed reduce the risk of infection by about 90%
and, crucially, that it is not necessary to
take it every day. Four times a week will
suffice, so the forgetful are not at risk, as
was once feared.
That matters, because many gay activists were suspicious that people might take
Truvada insufficiently regularly and, at the
same time, scale back on other precautions, thus exposing themselves to risk. As
a consequence, uptake of the medicine
had been low. Now it may increase.
Using a pre-exposure prophylaxis clearly makes sense for the individuals involved and, if widely adopted, would help
curb the epidemic. The World Health Organisation estimates that its widespread use
by gay men might avert 1m infections over
a decade. If heterosexuals adopted it too,
that figure could be much larger. But Truvada is expensive (about $1,300 for a
month’s course), and even were it cheap, it
is not clear how many people actually
would use it.
Tools to make a big dent in the epidemic 1
Science and technology 65
2 thus exist. But, as the example of Truvada
shows, they are not free—and many fear
that politicians’ eyes are wandering from
AIDS to other things. The Post-2015 Development Agenda, intended to follow on
from the United Nations’ Millennium Development Goals, which were set in 2000
and which explicitly mention AIDS as a
problem to be dealt with, do not, at the moment, mention the disease directly. This
worries many. Spending on prevention
and treatment, about $19 billion a year in a
combination of locally raised money and
foreign aid, is thought unlikely to rise over
the next few years. Those fighting AIDS
must learn to do more with less.
One watchword here is granularity. The
world’s AIDS maps, which once recorded
rates only on a country-by-country basis,
now do so region by region. This means effort can be focused on the worst-affected
places within a country, not just on the
worst-affected countries. Deborah Birx,
America’s global AIDS co-ordinator, thinks
such focus is essential. It will, she believes,
keep downward pressure on the infection
rate without too much extra expense. A
study published in the Lancet on July 19th,
to coincide with the conference, supports
her in this. Sarah-Jane Anderson of Imperial College London and her colleagues have
crunched the numbers for Kenya and concluded that focusing on the worst-affected
parts of that country could, over 15 years,
reduce the number of new infections by
100,000 at no extra cost.
Going with the grain
Granularity also applies to people. Researchers have long known that gay men,
prostitutes and those who inject themselves with drugs are at higher risk than
others, and sensible governments have
taken this into account when designing
their policies. Another set of papers in the
latest Lancet excoriate those who do not—
particularly those who persecute prostitutes. The authors suggest decriminalising
prostitution could avert a third of the infections that would otherwise happen to
prostitutes and their customers. But even
within the wider population, some people
are more at riskthan others, and what is going on here is not always clear.
In KwaZulu-Natal, for example, the rate
of infection in boys at, or just out of school,
rises slowly only as they get older, from 1%
in those under15 to 1.8% in those over 20. In
girls, it rises from 2.6% to 24.7%. Dr Karim’s
group has tried to find out what is going on
by sequencing the virus in infected pupils
in a group of five schools, to see who might
have passed it on to whom. The answer is
that these teenagers are not catching it
from each other: few pupils shared viral genotypes. The boys are not catching HIV at a
huge rate anywhere. The girls, though,
are—presumably from older, promiscuous
(and therefore infected) men who are act-
Ever downward
AIDS worldwide, m
4
New HIV infections
3
2
1
Deaths from AIDS
0
1990
95
2000
05
10
13
Source: UNAIDS Global Report 2014
ing as “superspreaders”.
That had been suspected, for sugar daddies are common in South Africa. But viral
genetics helps confirm the idea. In theory,
they might identify the individuals involved, too—though that would require
those people to make themselves available
for sampling, which sounds unlikely.
Even with all this attention to detail,
though, some budgets will have to go up. A
target of having 15m people on ARVs by
2015 was based on clinical guidelines
which are now outdated. In 2013 the World
Health Organisation decided that people
would benefit from taking the drugs earlier
in the course oftheir infections. This added
more than 9m to the list. And even knowing whom to give the drugs to requires a lot
of work. At the moment, UNAIDS reckons
19m of the 35m estimated to be infected
have not been identified. That means they
cannot be treated and have no reason to
modify their behaviour to avoid infecting
other people. Moreover, none of these
things, however successful, will truly end
AIDS. To do that would mean not just treating, but curing the 35m.
Two years ago, at the 19th AIDS conference, in Washington, DC, there was cautious hope that a cure might be possible.
One reason was that a baby girl in the
American state of Mississippi had, in a pe-
Victory pills
culiar set of circumstances, been given
ARV treatment immediately after birth but
the treatment had then been interrupted.
The Mississippi baby’s mother was infected when she gave birth, but her doctors
did not know in time to treat her, thereby
eliminating the risk of her child picking up
the virus at the bloody moment of parturition. The child’s treatment was then interrupted 18 months later, when the mother
moved out of the area.
When doctors re-established contact,
they found that the child seemed virusfree. If true, she would, in effect, have been
cured. They therefore did not give her
drugs again, and instead monitored her
closely. Sadly, it emerged earlier this month
that, 27 months after she had stopped receiving the drugs, the virus had returned.
Studies are nevertheless going on to
find out if giving ARVs to adults immediately after infection might stop HIV getting
a grip. Dr Lange was setting one up. Even if
this approach works, it will be of little use
to the 35m already infected. Here, the cupboard looks bare. Another isolated individual, the “Berlin patient” Timothy
Brown, has apparently been cured by the
drastic step of replacing his bone marrow
with a transplant from someone genetically immune to HIV infection. (Mr Brown
also had leukaemia; hence the operation.)
But that is not an option for most people.
The idea of using genetic engineering to
create a similar immunity in laboratorybred stem cells of the sort that give rise to
the cells HIV infects, and then transplanting the result into people, is being investigated. So is the development of drugs
which would flush HIV from the places
where it hides from the ARVs intended to
destroy it. A preliminary result suggesting
such flushing might be possible was announced at the conference, but that is a
long, long way from an effective medicine.
With luck, one of these options will
come good. But until then, the best advice
for those infected with HIV is: keep on taking the tablets. 7
66 Science and technology
Mental illness
Some needles in the haystack
A consortium of researchers has shone a powerful light on schizophrenia
T
HE human brain is the most complicated object in the known universe. Considering that complexity, and the number
of jobs it has to do—from regulating appetite to thinking great thoughts—the brain
goes wrong surprisingly rarely. But go
wrong it sometimes does, with ruinous
consequences for the lives of both the sufferer and his family and friends.
Some brain ailments, such as Alzheimer’s disease, leave visible scars in the
organ’s fabric. These are the province of
neurology. Others, such as schizophrenia,
which leave no such scars, belong to psychiatry. Erasing that distinction, by looking
for biological underpinnings ofpsychiatric
diseases, might let new treatments be devised. And that is the goal ofthe Psychiatric
Genomics Consortium (PGC), a multinational alliance of researchers who, by
pooling their findings, are able to gather
the large numbers of patients needed for
statisticians to spot, among the billions of
DNA straws in each person’s genomic haystack, the needles of causation.
The consortium’s latest publication, on
schizophrenia, was co-ordinated by Michael O’Donovan of Cardiff University, in
Britain, and is published in Nature this
week. The list of authors, though, runs to
more than 300 scientists from 35 countries.
These researchers have looked at the DNA
of more than 34,000 people with schizophrenia and, for comparison, more than
45,000 without it. The result is the most
comprehensive investigation so far of the
genetics of a psychiatric disorder.
Locus standi
Altogether, the paper’s authors have discovered 108 places in the human genome,
known as loci, where a change in a single
DNA “letter” (a single nucleotide polymorphism, or SNP) correlates with the manifestation of schizophrenia. All previous work
in the field had come up with only 30 of
these. Encouragingly, 25 of those 30 were
among the 108—thus independently confirming their reality.
A locus is not the same thing as a gene. It
is a heritable DNA region rather than a
functional unit. But the genes within or
near it will be known, thanks to the Human Genome Project. The paper’s authors
are thus able to say that three-quarters of
the loci they fingered contain a gene or
genes, and that a further 8% are close to
one. Intriguingly, only ten of the SNPs are
actually inside a gene, and so able to affect
In need of understanding
its composition. The others are thought to
be in bits of DNA that regulate the activity
of nearby genes.
The nature of those genes is telling.
First, and no surprise, is DRD2. This encodes
a receptor for dopamine—one of the chemicals nerve cells use to transmit signals between each other, across junctions called
synapses. DRD2 is the target for all existing
antipsychotic drugs.
Potential new targets emerged as well,
though. Some are involved in the activity
of a second transmitter molecule, glutamate; others regulate the flow of calcium
ions into cells. That, in turn, controls the
flow of neurotransmitters across synapses.
And it is this activity which ultimately results in the physical remodelling of synapses that is the fundamental mechanism by
which brains develop and learn things.
These discoveries will not be easy targets for drugmakers. Glutamate is the commonest transmitter in the brain, involved
in a host of processes there. And calcium
ions flow not just in the brain, but in the entire body. Picking off and treating the processes involved in schizophrenia without
creating side effects will be tricky. But this
knowledge does give pharmaceutical scientists something new to work with.
Another linkthe consortium’s researchers have helped clarify is between schizophrenia and the body’s immune response.
Such a connection has long been suspect-
ed. Several past studies suggest exposure to
viral infection in the womb or in early
childhood increases someone’s chance of
developing the condition, and in 2009 a
connection was made with a single immune-system gene. That lone hit has now
been joined by several others.
All this, then, adds up to an important
step forward in understanding schizophrenia. Nor does the PGC restrict its work to
that condition alone. Last year, in a paper
in Nature Genetics, the consortium’s researchers compared what was then
known of the DNA underpinnings of a
range of conditions (schizophrenia, bipolar disorder, major depression, autism and
attention-deficit/hyperactivity disorder).
The idea was to look for overlaps. They
found some, particularly between schizophrenia, bipolar disorder and depression.
Other work has discovered overlaps between schizophrenia and autism. And just
this week a paper in Psychiatric Genetics,
on research into a single glutamate-related
gene, GRM3, has shown that it is connected
both to schizophrenia and depression, and
also to alcoholism.
Compare and contrast
It will therefore be interesting to repeat the
approach this study used to try to create
comprehensive lists of loci for these other
conditions. That will help resolve an old
question: just how truly distinct are the various diagnoses psychiatrists come up
with? The field’s bible, the American Psychiatric Association’s “Diagnostic and Statistical Manual of Mental Disorders”, currently into its fifth edition, tends to split
things up, multiplying the number of allegedly different ailments. Many practitioners
disagree with this approach. Genomics
may help illuminate who is right.
This paper, then, is an important scientific step forward. And its publication coincided with a pragmatic advance, too. The
Stanley Centre, in Cambridge, Massachusetts, which contributed a third of the samples used in the consortium’s paper, and
which is one of the leading centres of research into the genetic links between different forms of psychiatric illness, announced receipt of a donation of $650m
from Ted Stanley, a retired businessman
who is its eponymous patron.
That donation is a useful sum of money
in a field that is not yet well financed. The
Stanley Centre is part of the Broad Institute. This grew, in turn, out of the Whitehead Institute, a leading contributor to the
Human Genome Project. Some people
have questioned the value of that project,
which they say has not delivered practical
medical advances as quickly as was promised at the time. This criticism has some
truth, for the linkbetween genetics and disease has proved harder to discern than
many had hoped. But discerned, at last, it is
being—as this latest paper shows. 7
Property
67
68
Books and arts
69 General William Tecumseh Sherman
69 The biology of punishment
70 Singing, a history
70 Margot Asquith’s war diaries
71 The future of the Maeght Foundation
For daily analysis and debate on books, arts and
culture, visit
Economist.com/culture
A memoir of hawking
Birdsong
A meditation on nature, raptors and grief promises to be a hit
T
HIS absorbing book opens in the
Cambridgeshire fens. “It’s a land of
twisted pine trees, burned-out cars, shotgun-peppered road signs and US Air Force
bases,” Helen Macdonald writes. She left
home at dawn in her old Volkswagen on
an errand she can barely name until she
finds what she is looking for: a pair of
goshawks on the wing, “raincloud grey”,
slipping through the air “fast, like a knifecut”, male and female dancing together in
the morning air. Three weeks later she
learns of her father’s death; the story she
tells is spurred by grief.
Grief of many kinds, not just for the loss
of a loved one. This is a well-wrought
book, one part memoir, one part gorgeous
evocation of the natural world and one
part literary meditation on the difficult legacy of T.H. White—English author, most
famously, of a great Arthurian fantasy,
“The Once and Future King”. In the first
book in that sequence, “The Sword in the
Stone”, the magician, Merlyn, changes his
young charge, Wart (really Arthur), for a
time into a hawk.
Like Ms Macdonald, White was intrigued by raptors. For a while he kept a
bird of his own, or tried to: “The Goshawk”, published in 1951, is his account of
his struggles with himself and the bird he
calls Gos. Aged eight, Ms Macdonald was
already fascinated by falcons, and came
across White’s book; it was unlike any
H is for Hawk. By Helen Macdonald.
Jonathan Cape; 300 pages; £14.99. To be
published in America by Grove Atlantic in
March 2015
other book about birds she owned. (She
quotes a review she found in an old British
Falconers’ Club journal: “For those with an
interest in the dull, introspective business
of manning and training a hawk, ‘The Goshawk’ will be a well-written catalogue of
most of the things one should not do.”)
White, a schoolmaster at Stowe, a wellknown English boarding school, was the
product of a brutal childhood. He would
never really recover from its damage, and
Ms Macdonald, with subtle thoughtfulness, paints his struggle to “man” Gos—the
term for schooling a hawk—as a struggle
with himself, with his violent sexual urges,
his bitterness against the world. Ms Macdonald’s struggle with her own Gos, a female goshawk she calls Mabel (there is a
superstition among falconers that a bird’s
hunting ability will be in inverse proportion to the ferocity of its name), runs alongside her potted life of the tormented
author whose Arthurian tales became a
feel-good Disney film and a romantic
Broadway musical.
Mabel and Ms Macdonald are the fastbeating heart of this passionate, discursive
essay. A goshawk is never not wild, and
there is much beauty in Ms Macdonald’s
language, in how she tries to convey to
readers who will never have flown a falcon what being close to one might feel like.
“Living with a goshawkis like worshipping
an iceberg,” she says. When her friend
Christina takes Mabel on her arm, “she
holds the hawk with cautious concentration, as ifit were a pitcher full of some caustic agent.” Mabel is “the bastard offspring
of a flaming torch and an assault rifle”. Occasionally, the language stretches a little
too far, which is odd, given that one of the
book’s strengths is its desire to resist
anthropomorphising what is truly wild.
Can an “unholy light” really shine from
Mabel’s eyes? Can her pupils be “opiated
pinpricks”? This is the language of literature, not the language of life.
But those slips do not, finally, detract
from the author’s achievement. Her descriptions of hunting with Mabel, scouring
the woods and fields for game, cause a
reader’s pulse to race. “Hunting with the
hawk took me to the very edge of being a
human,” she writes. Only at that edge can
she escape her sorrow. Falconry requires a
balance between mastery of wildness and
acceptance of that wildness: an idea that is
not unproblematic, as Ms Macdonald
acknowledges. It is not just White who was
a keen falconer; Hermann Göring was too,
and indeed, Ms Macdonald writes of
coming across his own goshawk, stuffed
and mounted in an archive.
In the end, there is no cure for grief, just
as a goshawk can never truly be tamed. In
the wild, “Looking for goshawks is like
looking for grace: it comes, but not often,
and you don’t get to say when or how.”
This memoir is lit with flashes ofthat grace,
a grace that sweeps down to the reader to
hold her wrist tight with beautiful, terrible
claws. The discovery of the season. 7
The American civil war
Marching through
Georgia
Fierce Patriot: The Tangled Lives of William
Tecumseh Sherman. By Robert O’Connell.
Random House; 404 pages; $28
T
HE American South will never forget
William Tecumseh Sherman. One hundred and fifty years ago, in 1864, General
Sherman led an army of 60,000 northerners through Georgia and the Carolinas,
burning Atlanta and foraging off the land.
He aimed to shatter the Confederates into
submission and to hasten the end of the
civil war. Sherman’s “March to the Sea”
endures as one of the most memorable,
and innovative, campaigns of the fouryear conflict.
Yet Sherman (pictured below right), a
military man for most of his career, had
come perilously close to missing the action. An earlier command in Kentucky had
gone badly, as he fought depression and
the press bashed him as insane. An alignment with General Ulysses Grant, who
emerged as the Union’s military saviour,
turned his fortunes around. The GrantSherman team proved hard-nosed, imaginative and determined to win, outshining
more lackadaisical Union generals. Together, Grant and Sherman won important battles at Shiloh and Vicksburg. “He stood by
me when I was crazy and I stood by him
when he was drunk; now, sir, we stand by
each other,” Sherman remarked of Grant.
Robert O’Connell’s Sherman is a complex and vibrant man—a “firehose of
ideas”, voluble and mercurial, yet cool under pressure. Above all he was a strategic
thinker able to adapt to changing circum-
Dandy Yankees dawdling
Books and arts 69
stances. His men adored him as “Uncle Billy”, not least because he took care not to
waste their lives in futile charges (“I’d follow Uncle Billy to hell,” said one soldier).
He was a “modern Attila”, who continued
to campaign ruthlessly against the Indians
and their buffalo when, after the civil war
ended, he took responsibility for the security of America’s transcontinental railway,
then under construction. After Grant was
elected president, Sherman replaced him
as America’s leading general.
Mr O’Connell, a longtime military analyst, shares plenty of nuggets about human
motivations in war. He draws out the tensions in both the Union and the Confederacy between impatient politicians and
more cautious (or realistic) generals. Sherman was an unusual psychological case;
he was content to be Grant’s “wingman”
and had asked President Lincoln not to
make him the top dog in one of America’s
western armies. He and Grant made an interesting duo: Sherman garrulous, Grant
laconic and determined. Sherman’s march
to the sea, Mr O’Connell contends, made
the general “one of the originators of what
is termed ‘modern war’—wholesale assaults on civilian populations as an integral part of military strategy”. Alas, it is a
point that he fails to develop.
For all his battlefield cleverness, Sherman also had some curious blind spots.
Devoted to preserving the Union, he apparently failed to see the civil war coming.
In 1860, just before war broke out, he was
heading a new military academy in Louisiana, training secession-ready recruits. During the war, blinded by prejudice and
narrow-mindedness, he placed little value
on the military intelligence provided by
former slaves who knew the area and
attached themselves to his armies. Fortunately, Sherman’s soldiers took notice.
Mr O’Connell’s writing can be engag-
ing, but he overplays his hand in ascribing
strategic and tactical motives to every
aspect of Sherman’s life, from his pre-war
fling with banking to his bizarre family life
(he married his foster sister, leading to
drama “worthy of Dickens”, Mr O’Connell
writes). Sherman’s youngest son is described as another shot from his “strategic
revolver”. The book would also have benefited from better editing. It is oddly organised, with later parts doubling back chronologically on already-trodden ground. Mr
O’Connell’s subject, General Sherman,
would have marched straight onward,
without a backward glance. 7
Crime and punishment
Lashes and lashing
out
The Punisher’s Brain: The Evolution of
Judge and Jury. By Morris B. Hoffman.
Cambridge University Press; 352 pages; $30
and £21.99
O
N A February afternoon in 1978,
Freddie Hall and an accomplice kidnapped Karol Hurst, who was 21 years old
and seven months pregnant. They drove
her to nearby woodland where she was
beaten, raped and murdered. After dumping her body, they used her car in a botched
robbery of a corner shop, during which
they killed Lonnie Coburn, a sheriff’s deputy. The facts have never been in dispute.
On the jury’s recommendation, Mr Hall
was sentenced to death in accordance with
Florida law.
In a long string of appeals the debate
centred on whether this was the appropriate punishment. Mr Hall has an IQ of
about 71, well below the national average.
He is now the longest-serving inmate on
death row, and his case became news
again recently when the Supreme Court
ruled on executing people who are mentally disabled. The court struck down the
state’s rigid policy that anyone with an IQ
of more than 70 is mentally fit to die, regardless of other evidence. Mr Hall’s lawyers insist that he is retarded and point to a
history of child abuse. To what degree,
then, should society blame him?
In “The Punisher’s Brain” Morris Hoffman, a trial judge in Colorado, argues that
questions over culpability vex judges and
juries far more often than the odd, perplexing whodunnit. People’s view of others’
misdoings have more to do with evolution
than abstract legal philosophy, he says. In
all their modern complexity, legal systems
are a biological solution to a simple problem: although it is advantageous to live in
co-operative societies, some people are
still prepared to break the rules for individ- 1
70 Books and arts
Singing
Voice-overs
A History of Singing. By John Potter and
Neil Sorrell. Cambridge University Press; 355
pages; £19.99
T
HE first music that humans made was
song. All music arrived, the early
Hindus believed, through the yoni, or
birth canal, of Vedic chants. The Abrahamic religions also based their music on
the chanted word, often equating instruments with pagan frivolity. From the
earliest known praise songs of the Sumerian king Culgi of Ur, 3,000 years ago,
singing voices have celebrated, seduced
and bound tribes together.
Yet this obvious truth cannot be proven. Until recording technology arrived,
hard evidence was limited to images of
open mouths on walls and pots, and
medieval singing manuals. Luckily, this
has not stopped musicologists from
trying to sketch out a history of singing.
John Potter, a singer formerly with the
Hilliard Ensemble, and Neil Sorrell, a
composer and expert in Asian music,
approach this challenge with brio.
Their survey bristles with facts.
Though written for the expert, it is equally accessible to the amateur alto. Who
knew, for example, that bel canto, an
Italian opera term, came to define European classical singing mainly because the
open vowels of Italian were easier to sing
than French or German? Or that the
virtuosic soprano of the castrato was due
to his artificially small and flexible larynx, combined with supersized lungs?
2 ual gain. Others are simply psychopathic.
Methods ofjudging and punishing vary
greatly, but research shows that people’s
punitive instincts are surprisingly uniform.
Across cultures recent and past, the intentions of the wrongdoer matter more than
the harm caused. In most legal systems
wilfully murdering someone receives a
harsher sentence (murder in the first degree) than accidentally killing them (manslaughter). Punishing premeditated harm
helps deter others from doing likewise, the
argument goes, as does holding a drunk
driver to account for inadvertently injuring
others on the road. The authorities are also
keen on finding better ways of preserving
order than tit-for-tat. Vengeful blood feuds
often trigger more violence.
In England juries used to throw bound
defendants into a body of water to see if
they could escape. Succeeding was seen as
a sign of innocence. Earthly judgment has
gradually become more reliable, even if for
Today’s singers, the authors argue,
sound nothing like those gone by. By the
mid-19th century, the anatomy of the
vocal tract was well understood, and
singers responded by dropping the larynx to achieve a voice of greater strength
and colour. The book dwells rather too
long on the Western classical tradition,
and gives short shrift to popular forms
like jazz, blues and hip-hop. But the authors’ passion shines through in asides
on everything from Bollywood to Egypt
and Mongolia, and especially in Mr
Sorrell’s descriptions of Hindu ragas,
which reflect Indian mathematical genius through the elaboration of a few
notes into dazzling patterns.
Two main ideas emerge from the
book. One is the absurdity of thinking of
music as a “universal language”. Singing
is culturally defined; what one group
finds pleasing another will find unlistenable. The second thesis is more surprising. For most of history, song has been an
improvisational, creative act. Composers’ and conductors’ “ownership of the
music”, enshrined in written scores, is
recent and perhaps short-lived. Opera,
the grandest form of singing in the 19th
century, has long since died as the “living
engine of vocal creativity”, the authors
conclude. In the 21st century, thanks to
jazz, singer-songwriters and teenagers
recording covers of their favourite songs
with digital technology, humans may be
returning to a mode of individual creativity that is the essence of singing.
a time some thought that the victims or
witnesses of the crime should make up a
jury’s ranks.
Impartiality can thus be construed to
be an evolutionary response that lets cooler heads prevail. The state is firm on trying
to pre-empt people’s hard-wired intuition
to punish. Laws often instruct judges to
withhold information about previous
convictions in the interests of a fair trial.
All of this makes sense. Mr Hoffman’s
book is good at showing how biology
helps identify blame, but it could have
done more to indicate how science might
make the way people are punished more
effective. People are, for instance, capable
of making nuanced judgments, yet mandatory sentencing or three-strikes-andyou-are-out laws take away their ability to
do so. The book says nothing about
optimising prison sentences or how to
tackle recidivism rates. The biology of
punishment needs more study. 7
Margot Asquith and the first world war
Telling tales
Margot Asquith’s Great War Diary, 1914-1916:
The View from Downing Street. Edited by
Michael Brock and Eleanor Brock. Oxford
University Press; 417 pages; $49.95 and £30
D
ID a British prime minister ever have a
more indiscreet wife? Or one more politically important? Margot Asquith gossiped and rowed with Westminster’s great
and powerful. They liked receiving her invitations to Downing Street, where Tories
broke bread with Liberals. Her bookish
husband Herbert Asquith profited politically from these soirées.
A recent television drama portrays Margot Asquith as a flibbertigibbet, who was
only interested in trivia. Her wartime diaries, published for the first time, reveal an
astute woman who relishes political argument. The diaries start with the lead-up to
war and end with the fall of the last Liberal
government and David Lloyd George’s extraordinary coup against the prime minister. Mrs Asquith is well placed to watch it
all. Michael and Eleanor Brock have done a
fine job as editors. Their footnotes signpost
all the major events of the great war and
provide the reader with some delicious
quotes.
Like the best diarists, Margot is looselipped: Americans are dim, the French are
disloyal, Germans are “great, coarse, savage brutes”. Winston Churchill is an egotist, General Douglas Haig a “remarkably
stupid man to talk to”. Andrew Bonar Law,
the Tory leader, is “a cunning, unreal creature” and, elsewhere, “a fifth-rate man”.
“The Tory party just now in England
has little or no real brains and a poor education. Eton, that beautiful, divine school, 1
2 is rotten, full of prejudice, laziness and far
too big and fashionable,” she writes. Much
of her venom is reserved for the owner of
the Times and the Daily Mail, the press baron of the age, Lord Northcliffe. His newspapers railed at the government daily, despite
censorship of the press, and he would later
loudly call for the wily Welshman, Lloyd
George, to replace Asquith as prime minister. Northcliffe “is a wicked man for whom
I have real contempt,” Margot writes.
Others shared her animus. Soldiers
hate the Mail, she writes. When Northcliffe’s papers slammed the Liberals for
failing to equip troops with enough shells,
readers burned their newspapers. Circulation of the Mail dropped for two months.
The press baron was resolute: “The thing
has to be done! Better to lose circulation
than to lose the war!”
Media storms are familiar now, but
some of the entries may make readers
wistful. This from May 13th 1915: the First
Sea Lord, Jacky Fisher, discusses with Margot taxation policy, before saying: “Come
along and have a Valse.” “He seized me by
the waist…and we valued round. The old
boy is a fine dancer.”
Books and arts 71
Some vital subjects barely get a mention. The diaries contain nothing about
Asquith being a drunk (gossips called him
“Squiffy”). The 62-year-old prime minister’s love letters to a young socialite, Venetia Stanley, 27, get a brief oblique reference.
In one of the saddest moments Margot
laments her age and records her devotion
to her husband. She has no anger, no wry
remarks, simply pain and puzzlement.
The death ofAsquith’s eldest son on the
Somme, the news delivered by telephone,
is hard to read. Asquith, who rarely shows
his emotions, not least to his sons, “put his
head on his arms on the table and sobbed
passionately”. The grief overwhelms his
premiership to such an extent that the
diaries’ editors believe it was partly
responsible for his departure from Downing Street.
“When a government falls in one week!
or should I say five days, you may be quite
sure its overthrow has been planned long,
long before,” writes Margot on her last
morning in Downing Street. Even in the
last moments of the Asquith premiership,
her natural political instinct shines
through. 7
The future of the Maeght Foundation
Sunshine and colour
SAINT-PAUL DE VENCE
One of the most popular art centres in the south of France hits hard times
W
HEN Aimé Maeght, a French art dealer, lost his young son to leukaemia in
the 1950s, a trio of formidable modern
painters—Georges Braque, Joan Miró and
Fernand Léger—persuaded him to turn the
family’s summer retreat above the hills of
Nice into an artists’ haven. The Marguerite
and Aimé Maeght Foundation is 50 years
old this month, and still bears abundant
traces of the artists who made it happen: a
magical Miró labyrinth, mosaics and
stained glass by Braque. Its collection of
12,000 works includes 35 sculptures by Alberto Giacometti, as well as masterpieces
by Pierre Bonnard, Marc Chagall, Miró,
Léger and Alexander Calder, among others. On average, 200,000 visitors tour its
colourful galleries and garden every year.
Behind the idyllic exterior, though, the
institution is vulnerable. The foundation is
finding it hard to raise its €3m ($4m) annual budget. The 12-person board—led by
Maeght’s son, Adrien, an ageing gallerist,
and including Adrien’s daughter, Isabelle,
as well as three representatives of the
French government—is divided over strategy. Adrien’s youngest daughter, Yoyo,
who eight years ago wrote the family story
together with her sister, has just published
“La Saga Maeght”, a bitter tell-all book that
describes her father as unloving and
accuses him of mismanaging the family’s
assets and giving Isabelle too much control
over them.
Aimé Maeght was originally a lithographer who sold radio sets and furniture in a
Cannes boutique with a print shop in the
back. When Bonnard, by then an elderly
man, came in one day to get a print made,
Calder cat
Maeght offered to sell the original engraving, and found a new vocation. In 1945 he
opened a Paris gallery and quickly became
one of the most important art dealers in
post-war France, representing Braque, Chagall, Miró, Giacometti and Calder. After the
Maeght Foundation opened, he hosted
many exhibitions by these and other artists, a programme that continues to this
day. This year’s anniversary show mixes
major pieces of modern art with paintings
by lesser-known contemporary artists.
Until he died in 1981, Maeght senior
bankrolled the foundation. He left it fourfifths of his considerable personal collection, and also bequeathed assets to be sold
for the institution’s benefit. Adrien, now
84, has made further gifts in kind: the land
and buildings that the foundation occupies, and works of art. But the Maeght has
to find cash to cover its operating costs, and
it relies on ticket sales for 80% of its budget,
compared with half that at the Fondation
Cartier in Paris. The rest comes from producing exhibitions for other galleries, and
from sponsorship and donations.
All this worries Olivier Kaeppelin, who
took over as the Maeght’s director in 2011
(having previously sat on the board as the
French Culture Ministry’s director of visual arts). He is soon to start fund-raising for a
€5.5m underground extension, with drawing and video-art galleries, a café-restaurant and, crucially, multipurpose spaces
that can be hired out. He is prepared to
name galleries after donors, Americanstyle, an unusual step in France.
Mr Kaeppelin calculates that the new
wing—which would take at least a year to
build—could generate as much as a third of
the yearly budget. Adrien Maeght, as
chairman, has offered to kick-start the
campaign. The director, meanwhile, has
approached construction companies that
could assist with building work, as well as
corporate and private donors, and central
and regional government.
Another proposal is more controversial
and has yet to receive full board approval.
Mr Kaeppelin wants the foundation to be
free to sell works. The collection is valuable. It includes Giacometti’s “Walking
Man I” (1961); another version auctioned at
Sotheby’s in 2010 fetched £65m (then
$104.3m). At the moment nothing from the
collection can be sold, but there are numerous lithographs and sculptures that exist in
similar or identical multiples which could
be disposed of without affecting it, he says.
Isabelle is not in favour. With three seats on
the board, she and the rest of the Maeght
family can technically be overruled. Still,
Mr Kaeppelin would rather be persuasive
than forceful.
But if nothing is done, either the Maeght
family or the French government will have
to step in with more funds. Otherwise one
of the Côte d’Azur’s most popular art
centres may not be around much longer. 7
72
Legal Services
Tenders
Bids Invited for
MedDRA Maintenance & Support Services Contract
The International Conference on Harmonisation of Technical
Requirements for Registration of Pharmaceuticals for Human Use
(ICH) is conducting a Call for Tender for the MedDRA Maintenance
and Support Services Organization (MSSO) contract.
MedDRA, the Medical Dictionary for Regulatory Activities, is a
standardised medical terminology developed to facilitate sharing of
regulatory information internationally for human use medical
products. It was frst released in 1999. The maintenance and support
of MedDRA is contracted to a MSSO.
The tender is open from August 15 to October 31, 2014.
Parties are encouraged to request the MSSO Tender Package by
declaring their interest to mssotender@ich.org. The package (in
English) will be available to suitably qualifed parties on receipt of
a signed confdentiality agreement (provided by ICH) and requested
company information.
Further information on this tender can be found on the ICH website
www.ich.org/mssotender.
Questions (in English) should be directed to mssotender@ich.org,
c/o ICH Secretariat, Geneva, Switzerland.
Courses
73
74
Appointments
Announcements
Deputy Director General-Research (DDG-R)
The DDG-R provides scientifc and management leadership for planning,
implementing and monitoring Institute’s research strategy. Builds
collaborative and highly effective and efficient research and development
teams in Asia and Sub-Saharan Africa. Provides leadership in setting
the strategic direction and priorities for research and ensures effective
implementation of the organization’s research portfolio.
Please visit http://www.icrisat.org/icrisat-careers.htm for detailed
position announcement and how to send your application.
Last date is: 31 August 2014.
Business &
Personal
GRENADA DUAL
CITIZENSHIP
IN 90 DAYS
www.GrenadaDualCitizenship.com
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recommended
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75
Tenders
2831, avenue de la Justice
Kinshasa Gombe
DEMOCRATIC REPUBLIC
OF THE CONGO
Société Nationale d’Electricité
Notice of the international pre-qualification procedure with a view to using optical fibres on the ground wires of SNEL’s high-voltage lines
Société Nationale d’Electricité (SNEL), represented by the Project Co-ordination Unit, has decided to pre-select experienced private-sector investors interested in operating
part of its surplus optical fibres on the ground wires of its existing high- and very high-voltage electricity lines (optical ground wires or OPGWs).
SNEL has installed fibre-optic cables along its power lines, including the line between the Inga hydroelectric plants (near Kinshasa) and Kasumbalesa on the Zambian
border over a distance of more than 2,200km, and along high-voltage electricity lines in Bas-Congo and Kinshasa. Fibre-optic cables are being installed along new power
lines and certain existing high-voltage lines, and along one existing very high-voltage line between Inga and Kolwesi.
SNEL intends to make some of the optical fibres it does not require for its own purposes available to investors with proven experience in operating optical fibres.
Accordingly, SNEL is hereby inviting interested private-sector investors (hereinafter “Bidders”) to take part in a pre-qualification process with a view to operating part of
its surplus optical fibres on the ground wires of its existing high- and very high-voltage electricity lines.
Bidders will be selected in two stages, through an international invitation to tender process. In the first stage, Bidders are therefore being invited to pre-qualify, in order
to take part in the second stage, i.e. the tender process. Only pre-qualified Bidders will be able to take place in this second stage. A brief description of SNEL’s fibre-optic
network and a list of pre-qualification criteria, required statements and necessary documents is included in the pre-qualification document (hereinafter “Pre-qualification
Document”) to which this notice relates.
Candidates may obtain the Pre-qualification Document from 30 July 2014 from:
Mr Masoso Bumba
Project Co-ordination Unit
Société Nationale d’Electricité (SNEL)
Avenue de la Justice, no. 2831 Quartier SOCIMAT Kinshasa – Gombe
Democratic Republic of the Congo
Tel: + 243 817 005 428, +243 810 040 030
Email: cdp.snel@yahoo.fr, masbumba@yahoo.fr
Mr Stéphane de Vaucelles
Managing Partner
Compagnie Financière Cadmos
Rond Point Schuman 11
1040 Brussels Belgium
Tel: + 32 2 256 75 57 Fax: + 32 2 256 75 03
Email: stephanedevaucelles@cf-cadmos.com
The Pre-qualification Document must be requested formally by mail, email or fax, and the request must state “Demande du Dossier de Pré-qualification pour
l’exploitation de fibres optiques sur les câbles de garde des lignes à haute tension de la SNEL”. When the request is received, the Pre-qualification Document
will be sent in a sealed envelope by SNEL or by Compagnie Financière Cadmos, which shall in no event be liable for any delays or losses en route.
Bidders’ pre-qualification applications, presented in the form required by the Pre-qualification Document, must be received by 2pm Universal Time (3pm Kinshasa time)
on 30 September 2014 at the Project Co-ordination Unit at the aforementioned address, and must expressly state “Offre de pre-qualification pour l’exploitation
de fibres optiques sur les câbles de garde des lignes à haute tension de la SNEL”.
SNEL will refuse any application received after the aforementioned deadline.
Bidders will be informed about whether or not their application was successful according to the terms and arrangements set out in the Pre-qualification Document.
Project Co-ordinator
Masoso Bumba
76
Economic and financial indicators
Economic data
% change on year ago
Gross domestic product
latest
qtr* 2014†
United States
China
Japan
Britain
Canada
Euro area
Austria
Belgium
France
Germany
Greece
Italy
Netherlands
Spain
Czech Republic
Denmark
Hungary
Norway
Poland
Russia
Sweden
Switzerland
Turkey
Australia
Hong Kong
India
Indonesia
Malaysia
Pakistan
Singapore
South Korea
Taiwan
Thailand
Argentina
Brazil
Chile
Colombia
Mexico
Venezuela
Egypt
Israel
Saudi Arabia
South Africa
+1.5 Q1
+7.5 Q2
+3.0 Q1
+3.0 Q1
+2.2 Q1
+0.9 Q1
+0.3 Q1
+1.2 Q1
+0.7 Q1
+2.3 Q1
-0.9 Q1
-0.5 Q1
nil Q1
+0.6 Q1
+2.9 Q1
+1.3 Q1
+3.5 Q1
+3.9 Q1
+3.4 Q1
+0.9 Q1
+1.8 Q1
+2.0 Q1
+4.3 Q1
+3.5 Q1
+2.5 Q1
+4.6 Q1
+5.2 Q1
+6.2 Q1
+6.1 2013**
+2.1 Q2
+3.6 Q2
+3.1 Q1
-0.4 Q1
-0.2 Q1
+1.9 Q1
+2.6 Q1
+6.4 Q1
+1.8 Q1
+1.0 Q4
+2.5 Q1
+3.5 Q1
+4.0 2013
+1.6 Q1
-2.9
+8.2
+6.7
+3.3
+1.2
+0.8
-2.5
+1.5
+0.2
+3.3
na
-0.5
-2.4
+1.5
+3.2
+3.4
+4.5
+1.3
na
na
-0.3
+1.9
na
+4.5
+1.0
+8.0
na
na
na
-0.8
+2.4
+1.9
-8.2
-3.2
+0.7
+3.0
+9.7
+1.1
+3.6
na
+2.9
na
-0.6
+2.1
+7.3
+1.5
+3.1
+2.3
+1.1
+1.4
+1.3
+0.7
+2.1
+0.4
+0.2
+0.4
+1.0
+2.5
+1.4
+2.6
+2.3
+3.1
+0.6
+2.4
+2.0
+3.0
+3.0
+2.6
+6.0
+5.4
+5.7
+5.4
+4.2
+3.8
+3.2
+1.9
-1.2
+1.0
+3.2
+5.0
+2.4
-2.5
+1.8
+3.1
+4.0
+2.3
Industrial
production
latest
Current-account balance
Consumer prices Unemployment
latest 12
% of GDP
latest
2014†
rate, %
months, $bn
2014†
+4.3 Jun +2.1 Jun
+9.2 Jun +2.3 Jun
+1.0 May +3.7 May
+2.2 May +1.9 Jun
+3.9 Apr +2.4 Jun
+0.5 May +0.5 Jun
+0.4 Apr +1.9 Jun
+8.1 Apr +0.3 Jun
-3.7 May +0.5 Jun
+1.2 May +1.0 Jun
+1.8 May -1.1 Jun
-1.8 May +0.3 Jun
+0.6 May +0.9 Jun
+0.5 May +0.1 Jun
+2.6 May
nil Jun
-2.7 May +0.5 Jun
+9.5 May -0.3 Jun
-6.8 May +1.9 Jun
+1.7 Jun +0.3 Jun
+0.4 Jun +7.8 Jun
-2.2 May +0.2 Jun
+0.5 Q1
nil Jun
+1.6 May +9.2 Jun
+5.7 Q1
+3.0 Q2
+2.1 Q1
+3.6 Jun
+4.7 May +7.3 Jun
+2.9 May +6.7 Jun
+6.1 May +3.3 Jun
+2.3 May +8.2 Jun
-2.4 May +1.8 Jun
-2.1 May +1.7 Jun
+8.6 Jun +1.6 Jun
-4.1 May +2.4 Jun
-4.9 May
— ***
-3.1 May +6.5 Jun
+3.4 May +4.3 Jun
+1.8 May +2.8 Jun
+1.6 May +3.8 Jun
+0.8 Sep +60.9 May
+8.2 May +8.2 Jun
+0.8 May +0.5 Jun
na
+2.7 Jun
-3.5 May +6.6 Jun
+1.9
+2.4
+2.7
+1.7
+1.9
+0.7
+1.7
+0.9
+0.8
+1.0
-1.1
+0.5
+0.8
+0.1
+0.6
+0.9
+0.3
+2.0
+0.6
+6.7
+0.2
+0.2
+8.7
+2.7
+3.6
+8.4
+6.4
+3.2
+7.7
+2.2
+1.7
+1.4
+2.5
—
+6.6
+4.1
+3.0
+3.9
+64.4
+9.1
+0.9
+2.9
+5.9
6.1 Jun
4.1 Q1§
3.5 May
6.5 Apr††
7.1 Jun
11.6 May
4.7 May
8.5 May
10.1 May
6.7 Jun
27.3 Apr
12.6 May
8.4 Jun
25.1 May
7.4 Jun§
5.0 May
8.0 May§††
3.3 Apr‡‡
12.0 Jun§
4.9 Jun§
8.0 May§
3.2 Jun
9.0 Apr§
6.0 Jun
3.2 Jun‡‡
8.8 2013
5.7 Q1§
2.9 Apr§
6.2 2013
2.0 Q1
3.5 Jun§
4.0 Jun
0.9 May§
7.1 Q1§
4.9 Apr§
6.3 May§‡‡
8.8 May§
4.8 Jun
7.1 Apr§
13.4 Q1§
5.9 May
5.6 2013
25.2 Q1§
-405.9 Q1
+142.3 Q1
+2.6 May
-117.7 Q1
-54.8 Q1
+310.1 May
+8.8 Q1
-5.4 Mar
-44.0 May‡
+266.1 May
+2.8 May
+30.3 May
+86.3 Q1
+4.3 Apr
+0.2 Q1
+24.4 May
+4.7 Q1
+60.7 Q1
-3.9 May
+51.5 Q2
+36.2 Q1
+105.4 Q1
-52.6 May
-40.9 Q1
+4.5 Q1
-32.4 Q1
-27.3 Q1
+14.3 Q1
-2.9 Q2
+56.3 Q1
+86.6 May
+61.9 Q1
+4.9 Q1
-5.7 Q1
-81.9 May
-8.4 Q1
-13.2 Q1
-23.3 Q1
+6.9 Q3
-1.9 Q1
+7.4 Q1
+132.9 Q1
-19.0 Q1
-2.3
+2.1
+0.2
-4.0
-2.7
+2.5
+2.9
-0.6
-1.3
+7.0
+0.6
+1.2
+9.9
+1.1
nil
+6.6
+1.5
+13.3
-1.8
+2.0
+6.3
+12.2
-5.8
-2.1
+2.8
-2.8
-3.3
+6.3
-2.1
+19.5
+4.5
+11.9
+2.5
-1.1
-3.7
-2.5
-3.8
-1.5
+1.4
-2.5
+2.5
+11.8
-5.5
Budget
Interest
balance
rates, %
% of GDP 10-year gov't
2014†
bonds, latest
-2.9
-3.0
-8.0
-4.6
-2.6
-2.6
-2.8
-2.6
-4.0
+0.5
-5.5
-3.0
-2.7
-5.7
-1.7
-1.5
-3.0
+12.2
-3.5
-0.6
-2.1
+0.3
-2.6
-1.2
+0.8
-5.2
-2.3
-4.0
-6.8
+0.7
+1.0
-2.1
-2.3
-1.8
-3.8
-1.3
-1.5
-3.6
-12.1
-11.9
-2.6
+2.2
-4.4
2.45
4.05§§
0.54
2.81
2.13
1.15
1.39
1.56
1.54
1.15
6.31
2.74
1.34
2.57
1.45
1.52
4.15
2.38
3.22
9.11
1.54
0.61
8.87
3.41
2.01
8.66
na
3.88
13.08†††
2.24
2.97
1.61
3.53
na
11.65
4.64
6.52
7.75
15.81
na
2.78
na
7.91
Currency units, per $
Jul 23rd
year ago
6.20
102
0.59
1.07
0.74
0.74
0.74
0.74
0.74
0.74
0.74
0.74
0.74
20.4
5.54
228
6.19
3.07
34.8
6.84
0.90
2.09
1.06
7.75
60.1
11,505
3.17
98.7
1.24
1,024
30.0
31.8
8.17
2.22
564
1,848
12.9
11.0
7.15
3.41
3.75
10.5
6.14
99.8
0.65
1.03
0.76
0.76
0.76
0.76
0.76
0.76
0.76
0.76
0.76
19.6
5.64
224
5.89
3.18
32.4
6.45
0.94
1.91
1.08
7.76
59.8
10,200
3.18
101
1.27
1,117
29.9
31.0
5.46
2.22
505
1,887
12.5
6.29
7.00
3.57
3.75
9.78
Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3
months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proven to be reliable; The State Street PriceStats Inflation Index, May 41.74%; year ago 17.70%. †††Dollar-denominated bonds.
Markets
% change on
Dec 31st 2013
Index
one in local in $
Jul 23rd week currency terms
United States (DJIA)
17,086.6 -0.3
+3.1
+3.1
China (SSEA)
2,176.2 +0.5
-1.7
-4.0
Japan (Nikkei 225)
15,328.6 -0.3
-5.9
-2.6
Britain (FTSE 100)
6,798.2 +0.2
+0.7 +3.6
Canada (S&P TSX)
15,394.4 +1.1
+13.0 +11.8
Euro area (FTSE Euro 100) 1,042.7 -0.4
+2.2
-0.1
Euro area (EURO STOXX 50) 3,193.1 -0.3
+2.7 +0.4
Austria (ATX)
2,376.6 -1.2
-6.7
-8.8
Belgium (Bel 20)
3,177.0 +0.6
+8.7 +6.2
France (CAC 40)
4,376.3 +0.2
+1.9
-0.5
Germany (DAX)*
9,753.6 -1.1
+2.1
-0.2
Greece (Athex Comp)
1,152.3 -3.2
-0.9
-3.2
Italy (FTSE/MIB)
20,831.3 -1.1
+9.8
+7.3
Netherlands (AEX)
408.5 -0.1
+1.7
-0.7
Spain (Madrid SE)
1,089.3
nil
+7.6 +5.2
Czech Republic (PX)
951.3 -1.1
-3.8
-6.3
Denmark (OMXCB)
672.9
nil
+18.9 +16.2
Hungary (BUX)
18,004.5 -0.9
-3.0
-8.4
Norway (OSEAX)
699.9 +0.4
+16.1 +13.8
Poland (WIG)
51,540.8 +0.2
+0.5
-1.3
Russia (RTS, $ terms)
1,272.0 -5.8
-6.5 -11.8
Sweden (OMXS30)
1,398.1 +0.4
+4.9
-1.5
Switzerland (SMI)
8,605.1 -0.1
+4.9 +3.4
Turkey (BIST)
82,854.6 +0.7
+22.2 +25.5
Australia (All Ord.)
5,567.0 +1.1
+4.0 +10.3
Hong Kong (Hang Seng) 23,971.9 +1.9
+2.9 +2.9
India (BSE)
26,147.3 +2.3
+23.5 +27.1
Indonesia (JSX)
5,093.2 -0.4
+19.2 +26.1
Malaysia (KLSE)
1,871.8 -0.8
+0.3 +3.7
Pakistan (KSE)
30,465.4 +2.3
+20.6 +28.6
Singapore (STI)
3,340.7 +1.1
+5.5
+7.6
South Korea (KOSPI)
2,028.3 +0.7
+0.8 +4.0
Taiwan (TWI)
9,499.4 +0.2
+10.3 +9.7
Thailand (SET)
1,541.6 +0.7
+18.7 +22.7
Argentina (MERV)
8,138.4 -4.8
+51.0 +20.5
Brazil (BVSP)
57,420.0 +3.1
+11.5 +18.5
Chile (IGPA)
19,117.4 -0.9
+4.9
-2.3
Colombia (IGBC)
13,960.9 +0.7
+6.8 +11.7
Mexico (IPC)
44,199.0 +0.4
+3.4 +4.8
Venezuela (IBC)
2,159.2 +1.9
-21.1
na
Egypt (Case 30)
8,563.1 -0.4
+26.2 +22.7
Israel (TA-100)
1,255.5 -0.5
+4.0 +5.7
Saudi Arabia (Tadawul) 10,162.7 +3.6
+19.1 +19.1
South Africa (JSE AS)
51,910.9 -0.3
+12.2 +11.8
Economic and financial indicators 77
IMF forecasts for 2014
Over the past year the IMF has lowered its
forecast for global growth in 2014 by 0.4
percentage points to 3.4%, according to
its latest “World Economic Outlook”
report. A weak first quarter for many big
economies and several emerging markets
caused the latest downward revision. The
United States suffered from a biting
winter and excess inventories, while
attempts to rein in credit growth in China
have dented demand. Forecasts for both
have fallen. The fund’s forecast for sanctions-hit Russia has dropped by three
percentage points over the past year. In
contrast the outlook has improved in
Britain, Germany, Japan and Spain. The
fund expects global growth to recover to
4% in 2015.
0
2
4
6
8
China
India
Britain
Germany
United States
South Africa
Japan
Brazil
Spain
nil
Month forecast
made:
Jul 2013
Jan 2014
Jul 2014
France
Italy
Russia
Source: IMF
The Economist commodity-price index
Other markets
Index
Jul 23rd
United States (S&P 500) 1,987.0
United States (NAScomp) 4,473.7
China (SSEB, $ terms)
227.2
Japan (Topix)
1,272.4
Europe (FTSEurofirst 300) 1,375.7
World, dev'd (MSCI)
1,754.1
Emerging markets (MSCI) 1,077.7
World, all (MSCI)
432.3
World bonds (Citigroup)
950.2
EMBI+ (JPMorgan)
721.6
Hedge funds (HFRX)
1,244.7§
Volatility, US (VIX)
11.5
CDSs, Eur (iTRAXX)†
60.5
CDSs, N Am (CDX)†
58.5
Carbon trading (EU ETS) €
6.2
GDP, % change on a year earlier
% change on
Dec 31st 2013
one in local in $
week currency terms
+0.3
+7.5
+7.5
+1.1
+7.1
+7.1
+0.5
-8.3 -10.4
-0.1
-2.3
+1.1
nil
+4.5
+2.1
+0.1
+5.6 +5.6
+1.0
+7.5
+7.5
+0.2
+5.8 +5.8
+0.2
+4.8 +4.8
+0.8
+10.7 +10.7
+0.2
+1.6 +1.6
+11.0
+13.7 (levels)
+0.6
-14.4 -16.3
+2.7
-8.7
-8.7
+2.0
+22.9 +20.0
Sources: Markit; Thomson Reuters. *Total return index.
†Credit-default-swap spreads, basis points. §Jul 22nd.
Indicators for more countries and additional
series, go to: Economist.com/indicators
2005=100
Dollar Index
All Items
Food
Industrials
All
Nfa†
Metals
Sterling Index
All items
Euro Index
All items
Gold
Jul 15th
Jul 22nd*
163.8
164.4
-3.5
-2.7
179.5
179.4
-7.1
-7.2
147.6
148.8
+1.4
+3.5
142.2
149.9
141.9
151.8
-5.5
+4.5
-9.6
+9.9
173.8
175.3
-4.0
-12.4
150.1
151.8
-2.5
-4.5
1,305.8
-1.0
-2.2
104.2
-2.2
-2.9
$ per oz
1,297.8
West Texas Intermediate
$ per barrel
% change on
one
one
month
year
99.7
Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO;
ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd &
Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional
†Non-food agriculturals.
78
Obituary
through English, Dutch and French literature with equal enthusiasm. Friends spoke
of a warm sense of humour, but also of
professorial absent-mindedness, with
books, research notes and papers left haphazardly in offices or at colleagues’ houses.
But those cerebral interests never shaded into professional detachment. Instead
of closeting themselves away in laboratories, he insisted that researchers like him
should talk to the people whom their work
was intended to benefit. He recognised
what medical researchers often miss: that
patients, even those participating in experiments, are not “subjects”, but partners.
That concern could make him a sharp
critic of those he thought foolish. In 2005
he tore into activists who had derailed
trials in poor countries of pre-exposure
prophylaxis—giving drugs to people who
were not yet infected but who were at significant risk of becoming so, such as prostitutes. Dr Lange argued that, in the end,
wearing a condom is a man’s decision over
which women may not always have much
influence. But the pills would give women
a way to protect themselves. In a letter in
PLOS Medicine, Dr Lange accused the protesters of anarchy:
Joep Lange
Joseph Marie Albert Lange, AIDS researcher, died on July17th, aged 59
I
T IS not true martyrdom to be killed in the
crossfire of someone else’s war. But Joep
Lange should still be seen as a martyr, for
he would not have died when he did had
he not been pursuing a war of his own—a
war far deadlier than the skirmishing in
eastern Ukraine which brought down the
aircraft in which he was flying.
His enemy, which has taken more lives
than any armed conflict since the second
world war, was the human immunodeficiency virus, HIV. The disease it causes, acquired immunodeficiency syndrome, or
AIDS, has killed 39m people since it was
recognised in 1981, and continues to kill
about 1.5m people a year. But that grim toll
has fallen sharply from a peak of 2.4m a decade ago. No soldier wins a war by himself.
But Dr Lange’s contribution was bigger
than most.
He died en route to Melbourne, where
the International AIDS Society’s biennial
meeting was about to be held. A former
president of the IAS, he had been in the
fight almost since the start. He qualified as
a doctor in 1981, just before AIDS transformed infectious diseases from a backwater eschewed by ambitious researchers
into a crucial and urgent field. He and his
team published vital papers on the way
HIV infection progresses in people’s bodies. These helped show the importance
of reservoirs of the virus that linger in cells
other than the T-lymphocytes that are its
chief target. That led him to suggest, in the
1990s, that treatment should start early, before a patient showed any symptoms.
These days that is the conventional wisdom. Then, it was controversial. And Dr
Lange was also the first to recognise the importance of another now-conventional approach: triple-combination drug therapy,
which prescribes medicines that attack
HIV in three different ways, denying the virus the opportunity to evolve resistance.
That was controversial, too. In the
mid-1990s, when triple-drug therapy was
developed, it required the willpower to
take up to 20 pills a day according to a precise regimen. It was, moreover, available
only to the wealthy. But what once cost
$15,000 a year can now be had for $100,
and as a single pill to boot. The therapy is
the mainstay of the programmes that have
helped turn the tide against AIDS.
He also organised a crucial study, published in 2003, which showed that giving
drugs to babies usually stops those infants
picking up the virus from their mothers’
milk. Such treatment reduced the rate of infection passed on this way from 15% to 1%.
In many ways he was the stereotypical
scientist. A confirmed agnostic, he enjoyed
the life of the mind, and would plough
The methods of these specific activist groups
are uninformed demagoguery, intimidation,
and “AIDS exceptionalism”, the last in the
sense that they exploit their HIV-positive status to get away with behaviour that would
not be accepted from others.
Yet he was, in his own way, as much of an
activist as any protester, determined to
help get drugs to those who needed them
most. You could usually get a cold Coke in a
sub-Saharan village, he observed. So there
was no reason why you shouldn’t be able
to get anti-AIDS drugs to the same place.
The parts others cannot reach
Since the turn of the century he had
chaired the PharmAccess Foundation, a
Dutch organisation that began by distributing drugs in African countries, working
with firms such as Heineken, a Dutch
brewery with extensive African interests.
Then when PEPFAR, America’s anti-AIDS
operation, and the Global Fund, an international body based in Geneva, took over
drug distribution, the foundation began
supporting medical-insurance schemes
and arranging loans to firms trying to fill
gaps in the patchy public health care that
exists in many parts of Africa.
Despite his prestige, Dr Lange never
abandoned research. He was, when he
died, setting up a trial to see if giving drugs
straight after infection can stop HIV getting
a grip in the first place. As he boarded his
doomed flight, he sent a text message to a
colleague. He might struggle to sleep, he
wrote. But at least that would give him precious time to work on his latest project. 7
Digital highlights
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How Israel’s “Iron Dome” works
The Iron Dome—a $1 billion programme
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over four-fifths of rockets fired at Israeli
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From our blogs
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Europe: Dark days
After anti-Jewish violence spread
across Paris on July 20th, France’s
leaders are in a quandary about how to stop
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Religion: A high vantage point
As Apollo 8 orbited the moon, on
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Lying commies
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help. Citi worked with government officials to create a purchasing card program
that provided schools with better buying flexibility and offered an easier way to
track funds. Now students receive materials faster than ever before.
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The Economist - July 26 2014

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